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Contracts I

I. Contract Formation
A. Basic elements of contract formation
1. Offer
2. Acceptance
3. Consideration
B. Applicable Rules
1. General contract law
a. Uniform Commercial Code (UCC)
i. Applies to the sales of goods
ii. Goods are movable at the time of contract formation
b. Common law (Classical )
i. Applies to everything but goods
ii. K2dsecondary source but very influential
c. Which rules apply?
i. What is the greater portion of the contract ($)
ii. 50/50 could be either so must argue both
2. Statute of frauds
a. Certain contracts must be in writing
i. Sale of goods >$500
1) Also personal property >$5,000
2) E.g. intellectual property
ii. Sale of real property
iii. Contract that cannot be completed within 1 year
1) Literally cannot under any circumstances
2) If at all possible then SOF does not apply
b. If SOF applies then see SOF section

II. Elements of a Contract (See Ray v. William G. Eurice & Bros., Inc.)
A. Offer (See Lonergan v. Scolnick and Normile v. Miller)
1. Expression of intent to enter into a bargain
a. Something for something (consideration)
b. Intent to be bound by the offers terms without any further assent from offeror
2. Creates a power of acceptance in offeree
3. ORP STANDARDif the offeree accepts, will a contract be formed?
4. Classical v. Modern (See Walker v. Keith and Quake v. AA)
a. Classical jurisdiction
i. Offer must expressly state all material terms; or
ii. A non-debatable formula to determine terms
iii. Cannot agree to agree later
iv. Formalize later? Only if certain terms
b. Modern jurisdiction
i. Do the parties intend to be bound?
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ii. Is there enough information to determine what constitutes breach and


fashion a remedy?
iii. ORP STANDARDargue both ways (reasonable minds could differ)
iv. Formalize later? If the terms can be reasonably figured out
5. Advertisements
a. Generally NOT considered offers
i. Cannot create a power of acceptance in an unreasonably large number of
people
ii. ORP STANDARDdid they intend to with everyone who received the ad?
b. Exceptions:
i. Specified number of people
1) First come, first served
2) First ten people to arrive
ii. An expressed limited supply and expressed number of people who can
accept
iii. When it is clear the seller has enough supply to feasibly with everyone
who views the ad
1) Flyers directed to certain people
2) Posters in the mall
6. Form letters
a. Generally NOT offersame reason as advertisements
b. Consider them an invitation to make an offer
c. ORP STANDARD
i. Did the sender intend to be bound?
ii. Are the terms listed enough to form a ?
7. Estimates, quotes, and bids
a. Estimates are not offers
i. Terms usually not definite enough
1) Is the estimate meant to be binding?
2) ORP STANDARDwould an ORP expect the offeror to be bound to
the estimate?
ii. Invitation to make an offer WITH solid terms
b. Quotes generally are not offers
i. Terms may or may not be enough to be an offer
ii. ORP STANDARDcould be enough for an offerargue both sides
c. Bids
i. Usually offers
ii. Follows an invitation to bid (make offers) that expresses requirements of an
offer
iii. Usually very specific terms
8. Terminating the power of acceptance
a. Rejection by offeree
i. I do NOT accept
ii. Counteroffer
1) Terminates offer by rejection
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2) Creates power of acceptance in original offeror under different terms

b. Lapse of time
i. Reasonable amount of time
ii. ORP STANDARDargue both sides
c. Revocation
i. Offeror has power to revoke any time before offeree accepts
ii. Revocation is effective upon receipt by the offeree
iii. Can be a term of the offere.g. must accept before 12/25/2014
1) Term like this is NOT a promise to keep open (Option )
2) States time of automatic revocation
iv. Offeree must get reliable notification
1) Not necessary a direct expression of revocation
2) Somehow must get notification (See Normile v. Miller)
d. Death or incapacitation of either party
9. Option (Firm offer) (See Wood v. Lady Duff Gordon, Berryman v. Kmoch,
and Walser v. Toyota)
a. Promise to keep offer open for a specific amount of time
b. Only valid under certain conditions
i. Supported by its own consideration
1) Basically a mini- inside an underlying
a) Ill sell you my car for $1000
b) ...and keep the offer open for 1 week if you give me $10
2) Little or seeming sham consideration is sufficient to validate
ii. Option promise under K2d 90(1) (overt promise)
1) I promise to keep offer open for 1 week
2) Rules for promissory estoppel (PE) apply
a) Only as far as the promise to hold the offer open
b) To the extent necessary to prevent injustice
iii. Reliance under K2d 87(2) (implicit promise under the circumstances)
1) Substantial, reasonable, foreseeable reliance on an offer is binding to the
extent necessary to prevent injustice
2) Generally only applies in GCSubcontractor context (See Drennan v.
Star Paving) Baird

iv. Signed writing under K2d 87(1)(a)


1) A signed writing stating offer will remain open is binding if:
a) It recites any consideration (regardless of whether consideration is
actually paid);
b) The underlying contract is fair; and
c) The option is for a reasonable amount of time
2) Some courts follow; most do not
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v. Merchant signed offer to buy or sell goods under UCC 2-205


1) If a merchant signs an offer that states a period of irrevocability, it is valid
without consideration, statement of consideration, or reliance
2) Can be no longer than 3 months (under UCC only)
3) PE under 87(1), 90(1), or option w/ consideration may still apply past
the 3 month limit
vi. Beginning performance on unilateral contract under K2d 45
1) A contract that can only be accepted by performance becomes
irrevocable when performance begins (explained fully under acceptance
section)
2) Preparing to perform does not constitute beginning performance but
87(2) may apply to reliance costs
B. Acceptance
1. Manifestation of intent to be bound by the terms of an offer in the manner
prescribed by the offeror
2. Common Law (applies to non-goods AND in absence of UCC definition)
a. Mirror image rule
i. Acceptance must be to the exact material terms of the offer
1) Material terms are those that offer is dependent upon
2) Simple requests with a purported acceptance may still be acceptance
and not counteroffer
3) ORP STANDARD
a) I accept but please have the car washed Acceptance
b) I accept only if you wash the car first Counteroffer
ii. Any additional/different terms constitute a rejection and counteroffer which
must be accepted by original offeror before formation
b. Last shot rule
i. If there are no overtly agreed upon terms but actions imply a contract then
last shot rule applies
ii. The terms of the last offer are the terms of the
c. Manner of acceptance
i. Bilateral
1) Acceptance by promise or performance
a) Promise for promiseIll pay you $10,000 for your car
Promise to pay $10k
Promise to deliver car
formed when agreement made (mutual assent) regardless if car
is ever delivered (if not then breached)
b) Promise for performanceIll pay $500 if you paint my house
Promise to pay $500
formed even if painter says nothing but starts painting the house
c) Offeror can specify how to accept, and if so only formed when the
specific action happened (promise or performance)
2) Acceptance by part performance
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a) K2d 62(1) If offer gives choice of promise or performance then


tender or beginning of performance is acceptance
b) K2d 62(2) Acceptance by performance in this manner constitutes
promise to complete performance (in contrast to unilateral )
Once performance is begun, the contract is formed and both
parties are bound to the contract
Beginning of performance operates as a promise
ii. Unilateral (See Petterson v. Pattberg and Cook v. Coldwell Banker)
1) Acceptance only by performance
2) Ill pay you $100 if you run around the block
a) Acceptance occurs when performance complete
b) When performance begins, offer becomes irrevocable (K2d 45) but
formed at completion
Must be tender or beginning of performance
NOT preparation to begin performance
3) E.g.bonus payments, reward offers, rebates, etc.
d. Mailbox rule
i. An offer is effective when RECEIVED by offeree
ii. Acceptance is effective when SENT by offeree
1) Exceptions:
a) Offer can state acceptance only valid when received
b) Option acceptance is only when received
iii. If offer is revoked but offeree already mailed acceptance then is formed
3. Acceptance with the sale of goods (UCC 2-207Battle of the Forms) (See
Princess v. GE and Brown v. Hercules)
a. 2-207(1)A definite and seasonable timely expression of acceptance will
form unless:
i. Acceptance is expressly conditional on additional or different terms
1) An overt statement that the new term(s) must be agreed upon before
becomes binding
2) Requires further assent from original offeror
ii. Could be informal agreementnot necessarily in writing
b. 2-207(2)If is formed under 2-207(1) then the following applies to
additional or different terms:
i. Both merchants (anyone who is regularly in business and is making the
deal in question for their business and not as a consumer)
1) Additional terms become part of the contact unless the offer expressly
rejected additional terms
2) The additional terms would materially alter the (comment 4)
a) Surprise
b) Hardship
3) The offeror expressly objects to the additional terms
4) Different terms have three approaches (if present, argue all three)
a) Approach 1apply 2-207(2)
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b) Approach 2different terms NEVER come in


c) Approach 3Apply the Knock-Out Ruledifferent terms knock each
other out and are replaced with reasonable terms and background
provisions of the UCC
ii. Only 1 or neither is merchant
1) Additional and different terms must be agreed upon
2) Terms of the offer stand
c. 2-207(3)
i. Supplants common law last-shot rule
ii. Applies when no is formed but parties act as is formed
1) Knock-Out Rule applies
2) All different terms out
3) UCC warranties and background provisions apply
4) Terms like limitations on liability are out
4. Boxed termsorder something and terms arrive in the box with the product (See
Hines v. Overstock and DeFonted v. Dell)
a. Approach 1
i. formed at point of sale
ii. Terms in the box are additional terms (apply UCC 2-207)
b. Approach 2
i. not formed until terms received and accepted
ii. Acceptance occurs if product kept for reasonable amount of time
C. Consideration
1. Something of value or detriment to a party
a. E.g.MONEY for GOODS
i. Party A pays money (detriment) to party B (value)
ii. Party A gets goods (value) from party B (detriment)
b. Also forbearance from an act one is legally able to do (See Hamer v. Sidway)
c. A promise is consideration if fulfillment of that promise would be consideration
i. Ill paint your house Tuesday
ii. Ill pay $50 for that baseball card
d. Voluntary change in legal status (forgiveness of debt)
e. Must be a bargain (SOMETHING for SOMETHING)
2. Cannot be a gratuitous gift, or for past performance (See Dougherty v. Salt)
a. Ill give you $2,000 because I want you to quit your jobGIFT, quitting job is
not a term of getting money
b. Ill give you $2,000 if you quit your jobBARGAIN, $2k consideration for
quitting job (an act of detriment)
3. Conditioned gift vs. consideration (See Plowmen v. Indian Refining Co.)
a. Ill let you borrow my car if you return it with a full tank of gas (gas tank full)
i. Conditioned gift
ii. Filling up the tank is not something the owner wants in exchange for use of
the car (the full tank has no value to the owner because its already full), just
a condition of usereplace the gas you use
b. Ill let you borrow my car if you return it with a full tank of gas (gas tank
empty)
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i. Consideration
ii. The owner lets you use his car and in return he gets a full tank of gas
4. Consideration does not have to be fair (See Batsakis v. Demotsis)
a. formation is not dependant on a fair bargain, just a bargain
b. law is meant to be binding when parties want to bound, not to make an unfair
deal more equitable
5. Sham consideration
a. Something that would normally be consideration cannot be given just to avoid
the consideration requirement if it is not really part of a bargain
b. E.g.$1 for a Yacht SHAM CONSIDERATION
c. ORP STANDARDwould someone believe a yacht would cost $1?

III. Alternate Theories of Recovery


A. Promissory estoppel (K2d 90)
1. Elements of PE
a. Promise
i. A clear and definite promise by a party (not stating nor expecting any
consideration in return)
ii. The promise must induce action (or forbearance) in the promisee
b. Reliance
i. Actions by the promisee in reliance of the promise being carried out
ii. Actions must be:
1) Foreseeableto the promisor
2) Reasonableactions by the promisee
3) Actualpromisee must change behavior that they wouldnt have done
anyway
4) Detrimentalpromisee must be harmed because of reliance/worse off
compared to if the promise was never made (not worse off than you
would be if the promise had been fulfilled)
c. Injustice
i. Notion that it would be fundamentally unfair to the promisee to leave him
without recourse just because there was no consideration to enforce the
promise
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ii. The amount of injustice may affect the remedy


2. Remedy
a. Performance of the promise; but
b. Limited as justice requires
3. Cases
a. Kirskey v. Kirskey
b. Harvey v. Dow
c. Katz v. Danny Dare
d. Aceves v. U.S. Bank
B. Restitution (Contract Applied-in-law/Quasi-contract/Unjust Enrichment) (See
Credit v. Pelo, Commerce v. Equity, Watts v. Watts)
1. Elements
a. Material benefit being provided to person receiving benefit
b. Intent to charge (not doing this for free)/benefit by the person providing the
service
i. Professionals have presumption of yes
ii. Others have presumption no
c. Reasonable to provide to person receiving benefit
2. Remedylesser of:
a. Cost to provider of benefit; or
b. Amount of benefit to recipient
3. If SOF defense applies, then you can still claim restitution
4. Cases
C. Promissory Restitution (See Mills v. Wyman, Webb v. McGowin)
1. Elements
a. Same as restitution:
i. Material benefit being provided to person receiving benefit
ii. Intent to charge/benefit by the person providing the service
iii. Reasonable to provide to person receiving benefit
b. PLUSPromise made to pay for past performance.
i. It is not a promise relied upon and not part of a bargain.
ii. Comes after benefit has been provided.
2. Burden shift to the defendant to prove plaintiff intended to provide gift
3. Remedy
a. Enforcement of promise; or
b. If promise is not reasonably proportionate then reduced to level of service

IV. Statute of Frauds (See Crabtree v. Elizabeth Arden, Beaver v. Brumlow, Alaska Dem.
v. Rice, Buffaloe v. Hart)
A. Certain contracts must be in writing
1. Sale of goods >$500
a. Also personal property >$5,000
b. E.g. intellectual property
2. Sale of real property
3. Contract that cannot be completed within 1 year from formation
a. Literally cannot under any circumstances
b. If at all possible then SOF does not apply
B. Common Law (K2d 139)
1. A signed writing by the party to be charged that reasonably identifies the subject
matter of the contract,
a. definition of signature 134Any symbol made or adopted, with the intent,
actual or apparent, to authenticate the writing as that of the signer
b. Literally only applies to SOF, but arguably could be applied to other writings in
the Restatement--87(1)signed option offer
2. It sufficiently indicates that a contract has been made between the parties or has
been offered by the party to be charged, and
a. States with reasonable certainty the essential terms of the unperformed
promises in the contract
b. the writing can be made at any time
c. does not need to be a memorialization of a contract (can be a diary entry)
3. if essential terms are missing, other evidence can be supplied to indicate that term,
but generally the writing is inadequate if it omits an essential term (compare to
UCC)
4. The signed writing must identify the contract in questionEx. a lease contract with
an optional renewal provision signed by both parties probably does not adequately
show the existence of the renewal contract, but will show the existence of an offer
by the party to be charged

C. Exceptions under common law


1. Part Performance (K2d)
a. K for interest in land - If one party reasonably relies on K and other party
continues to assent to terms without writing, then K2d 129 allows for specific
performance/equitable relief NOT damages. K2d 139 can be used to get
damages.
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b. K2d 130 allows for performance that cant be completed within 1 year for party
that fully completes performance within 1 year:
c. Majority SOF doesnt prevent enforcing other parties promises under K
d. Minority SOF doesnt prevent enforcing other parties promises under K, BUT
only if the full performance occurred within 1 year of making of K. Otherwise,
recovery is limited to restitution.
2. Promissory Estoppel (K2d 139, 90) but first restitution under 139
D. UCC 2-201
1. 2-201(1) requires a writing sufficient to indicate a contract for sale has been made
between the parties
a. less demanding than K2dneed not state all essential terms of the contract
even quantity but performance will be limited to the quantity indicated on the
memorandum (thus the writing must at least indicate some quantity to be
enforceable at all)
b. Signed by party against whom enforcement is sought
c. Definition of signedany symbol executed or adopted by a party with present
intention to authenticate a writingmore restrictive than the restatements
definition
d. Standard is whether there the writing affords a basis to believe that oral
evidence rests on a real transaction
2. 2-201(2) is an additional way a writing can satisfy the SOFBetween merchants if
one party sends a written confirmation that would otherwise satisfy 2-201(1)
against the sender (there is a reasonably sufficient basis to indicate that a contract
has been entered into), then that confirmation is valid (as to the SOF) against the
recipient if the recipient has reason to know of its contents, and does not object to
the existence of the contract within 10 days (even though the recipient didnt sign it)
a. a signed objection may be a valid writing under 2-201(1) if it does not reject the
existence of a contract
b. Ex. Merchant to a contract sends another merchant a confirmation for 1000
widgets of $5000, and the recipient responds, No, the contract was for
$7000.not a valid objection under 2-201(2) and the SOF will be satisfied
c. Objection must object to the actual existence of the contract
3. (See Crabtree v. Elizabeth Arden)there may be several writings that combine to
form a memorandum that satisfies the SOFthey must clearly relate to the same
transaction, but as long as some of the writings state with reasonable certainty the
essential terms of the contract, and another writing contains a signature, then the
writing is valid as to the SOF
E. Exceptions under UCC 2-201
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1. Part performance
a. Under UCC, part performance can only validate K for the goods which have
been accepted or paid for and accepted
b. Admission by other party of the existence of K
2. Once admitted, party making admission cannot use SOF as a defense
3. Goods are specially manufactured
4. Vendor accepts or holds payment

V. Interpretation of Contract Terms (See Joyner v. Adams and Figaliment v. BNS)


A. General Principles/Historical Development
1. What happens when two (or more) parties to a contract interpret various terms
within in the contract differently?
a. The Peerless Case
i. Contract for cotton to be shipped on the ship Peerless
ii. But there were 2 ships named Peerlessone arriving in October, one in
December
iii. Buyer interpreted the contract to be the earlier ship, seller interpreted it to be
the later one
iv. When the seller shipped the goods, the buyer repudiated the contract
v. Who breached?
vi. Court found that there was no contract
2. Classical court
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a. If there is no meeting of the mindsi.e. parties attach different meanings to


one or more terms, then there has been no mutual assent, and there is
therefore no contract
3. Modern Theorists
a. Modern courts and scholars began to analyze interpretation issues objectively
b. How would a reasonable person interpret a given term or clause?
c. But what if two parties subjectively attached a meaning that was different from
what an objectively reasonable person would attach?
d. Or worse, what if the parties disagreed over the term, but an objectively
reasonable person would interpret the term different from either party?
B. Modified Objective Approach
1. If both parties subjectively agree to the interpretation of a given term or clause,
then that meaning will govern even if it is different from the interpretation that an
objectively reasonable person would attach
2. If the parties disagree, then decide who is more reasonable
a. If one party does not know or has no reason to know of the meaning the other
party attaches to a term, and the other party knows or has reason to know of
the meaning that the first party attaches, then the interpretation attached by the
first party will govern.
b. If the situation is completely even and neither party knows or has reason to
know of the meaning the other party attachesthere is debate on how often
this actually occursthen there has been no mutual assent and therefore no
contract
C. Restatement 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 interpreted in accordance with the meaning attached by one of
them if at the time the agreement was made
a. That party did not know of any different meaning attached by the other, and the
other knew the meaning attached by the first party, or
b. That party had no reason to know of any different meaning attached by the
other, and the other had reason to know the meaning attached by the first party.
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3. Except as stated in this Section, neither party is bound by the meaning attached by
the other, even though the result may be a failure of mutual assent.
a. i.e. no contract if the parties both reasonably did not know nor reasonably
should have known of the others interpretation
D. Other considerations
1. Generally, a contract should be construed against the drafter of the contract,
because he has the knowledge, skill, and power to draft terms favorable to him.
a. But, when both parties are sophisticated, as in Joyner v. Adams, both parties
have the power and knowledge both to negotiate and to understand terms
commonly used, so less emphasis is placed on who actually drafted the
contract
b. Terms are also interpreted with the overreaching purpose of the contract
(fairness argumentwhat was the contract actually for?)
c. Plain language, course of dealing, and usage of trade are all factors that go into
who knows or reasonably should know what the other party means

VI. Warranties Under the UCC (See Caceci v. DiCanio and Bayliner v. Crow)
A. 2-313 Express Warranty overt statement, implied warranty - ORP would believe that
this is what youre going to get; does not include puffery or opinions.
B. 2-314: Implied warranty of merchantability only applies to merchants who regularly sell
good of the kind in question. Fit for its ordinary use. Good has to be Ok/pass in the
trade. (cannot be materially problematic)
C. 2-315 Implied warranty for fitness for a particular purpose seller has skill or
judgment and knows or has reason to know that the buy is relying on the sellers
expertise to select or endorse the good for a particular use.
D. 2-316 some warranties can be disclaimed

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