CONTRACTS – OUTLINE (FALL 2018)

GENERAL QUESTIONS

Why do we have contract law?

 S
What are its sources, i.e., where does it come from? Who makes contract law?
 Sources:
o UCC: Supplants common law when state’s common law conflicts with the statute
o Second Restatement of Contracts: Persuasive authority–until a court adopts one
or more provisions as common law in its jurisdiction
 Where does it come from?
o Common Law, UCC, R2, Precedent
What promises are legally enforceable (i.e. what is a contract)?
 Promise
o R2-2: A promise is a manifestation of intention to act or refrain from acting in a
specified way, so made as to justify a promisee in understanding that a
commitment has been made.
o R2-4: “A promise may be stated in words either oral or written, or may be
inferred wholly or partly by conduct.”
 R1: “A contract is a promise or a set of promises for the breach of which the law gives a
remedy, or the performance of which the law in some way recognizes as a duty.”
 Mutual assent:
o To establish whether enforceable promises have been made, courts look to see
whether there was mutual assent to being bound.
o The objective theory of contract is an interpretation tool whereby assent is
established (or not) by considering the objective manifestations of intent, above,
and sometimes to the total exclusion of any subjective intent. (e.g. Lucy v.
Zehmer)
 How to Determine Enforceability
o Did parties intend to be bound? (Did actions manifest assent? Was
communication “pregnant with intent”, use perspective of reasonable person)
o Enforceable contracts  Mutual Assent + Consideration

What is the difference between the subjective and objective standards for determining
intent?
 Objective Theory of Contract
o Judge on objective standard (would a reasonable person conclude you have
assented), subjective intent not necessary.
 Exception: If the other party knows you are joking, then there is no
assent.
  R. (First) 71: “If words or acts of one party have but one reasonable
meaning, the undlisclosed intention is immaterial except when the
unreasonable meaning is known to the other party”
 Thjs knowledge is based on subjective standard.
o Manifestation of Assent (R19)
 Can be written/spoken/known by other action/failure to act
 Party must intend to engage in the conduct and knows or has reason to
know that the other party may infer from his conduct that he assents.
 Assent can be voided by fraud/duress/mistake/other invalidating cause.
o Mental assent of the parties not required for formation. (Zehmer)
 Upheld contract for sale of land even though offer was a joke, offeree
thought it was serious, outward manifestations indicated that it was
serious (legal terms, rewriting contract, negotiations) so there was no
fraud.
o R2-16: Drinking isn’t enough to invalidate assent, must be intoxicated. (Zehmer)
o Policy: Imposes liability on those who act unreasonable (and they’re best
positioned to avoid misunderstandings. (Efficient deterrence + fairness +
subjective intent is harder to prove
 Raises issues of personal autonomy
What problems would arise if a purely objective standard applied to all contract disputes?
What about a purely subjective standard?
What is meant by “the reasonable expectations of the parties,” and how does a court
ascertain reasonableness

CONSIDERATION

What makes a contract legally enforceable?

 Legally enforceable contract  Mutual Assent + Consideration
 Executory Contract (Bilateral)  Status of contract where neither party has performed.
What types of promises are enforced? What types of promises are not enforced?
 Enforceable Promises have consideration and mutual assent
 Forbearance on the part of an at-will employer from firing an at-will employee serves as
consideration to support a non-compete agreement. (Lakeland)
 Limits to Consideration  Pre-existing duty, illegality, illusory promises
What is an illusory promise?
 R2-70: An illusory promise is “words of promise which by their terms make
performance entirely optional with the ‘promisor’” (Does not constitute consideration)
What is consideration? What are its elements? What suffices as consideration?
 Consideration is the primary route for majking a promise enforceable and finding
mutual assent – i.e. promise is enforceable if it is supported by consideration.
 What is consideration?

Consideration (R2-71)
 1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promisee in exchange for that promise.
3. The performance may consist of
o An act other than a promise, or
o A forbearance (intentional delay in collecting a debt or demanding performance);
or
o The creation, modification, or destruction of a legal relation
4. The performance or return promise may be given to the promisor or to some other
person. It may be given by the promisee or by some other person.
 NOTE: A seller forbearing their right to sell a type of oil to others constitutes
consideration, even if the seller is not obligated to manufacture those types of goods at
all. (Petroleum Refractionating Corp.)
Unilateral v. Bilateral Contracts
 R2-45: Option Contract Created by Past Performance (Unilateral Contract)
o (1) Where an offer invites an offeree to accept by rendering a performance and
does not invite a promissory acceptance, an option contract is created when the
offeree tenders or begins the invited performance or tenders a beginning of it.
o (2) The offeror's duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in
accordance with the terms of the offer.
o Note: Rule of section is to protect the offeree in justifiable reliance on the
offeror’s promise, and rule yields to manifestation of intention which makes
reliance unjustified.
o Where part performance or tender by the offeree creates an options contract,
the offeree is not bound to complete performance.
 Unilateral Contracts (Option Contract)
o Promise-for-Performance (Consideration is the performance and performance
must occur for there to be a contract)
o Forbearance can be consideration (Hamer)
 Bilateral Contract
o Promise-for-Promise
Mutuality of Obligations
 Mutuality of Obligations: Both parties are bound or neither party is bound. (Once one
party performs, other can’t back out)
 Exception to Mutuality of Obligations
o R2-79: If the requirement of consideration is met, there is no additional
requirement of
 A) a gain, advantage, or benefit to the promisor or a loss, disadvantage,
or detriment to the promisee; or
 B) Equivalence in the values exchanged; or
 C) “Mutuality of Obligation”
Output (UCC 2-306: Output. Requirements and Exclusive Dealings)
 (1) A term which measures the quantity by the output of the seller or the requirements
of the buyer means such actual output or requirements as may occur in good faith,
except that no quantity unreasonably disproportionate to any stated estimate or in the
absence of a stated estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded. (Supply shouldn’t exceed demand by too
much)
 (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind
of goods concerned imposes unless otherwise agreed an obligation by the seller to use
best efforts to supply the goods and by the buyer to use best efforts to promote their
sale.

What is past consideration? Is it enforceable?

 Past Consideration (R2-86: Promise for Benefit Received)
(1) A promise 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 Subsection (1)
a. if the promisee conferred the benefit as a gift or for other reasons
the promisor has not been unjustly enriched; or
b. to the extent that its value is disproportionate to the benefit.
o Note: Past Consideration is not consideration
 Moral Obligation (Harrington v. Taylor, Webb v. McGowin)
o Past Consideration (prior benefit) + Moral Obligation (Later Promise)  Creates
ground to make a later promise enforceable

Restitution: General questions:

 What is restitution?
 Compared with consideration and reliance, how does restitution
operate as a basis for finding and enforcing a promise?

1. CB 65-90 (Cases: Ricketts v. Scothorn—skip Note 1, Cohen v. Cowles

Media Co, and Midwest Energy v. Orion Food Systems; Problems: 2-7)
SS R2-90 (1)
 2. CB 84-90 (Case: Bailey v. West)

Topic 2: CONTRACT FORMATION

Role of Courts: General questions:

 What is the role of the courts in resolving contract disputes?
 What public interests are courts charged with weighing and
advancing?
 How does advancing these public interests affect the “justness” of a
court decision?

Offer and Acceptance: General questions (1 week: 3-4 hours)

 What is the legal effect of an offer?
 What are the characteristics of a legally enforceable offer?
 What factors distinguish an advertisement that is mere
solicitation from an advertisement that is an offer?
 What is the legal effect of an acceptance?
 What are the characteristics of a legally effective acceptance
(i.e. substantive and procedural aspects)?
 If a response to an offer does not operate as an acceptance,
what might be its legal effect?
 How might an offeree’s power of acceptance be terminated?
 What is a unilateral contract? What is a bilateral contract?

3. CB 91-97(Case: Sun Printing v. Remington)

4. CB 97-101 (Case: Ford Motor Credit v. Russel);

117-123 (Case: Ardente v. Horan; Problems: 3-3 and 3-4); 127-130 (skim
parts relating to cases we haven’t read); 130-141 (Case: Double AA
Builders v. Grand State)
SS UCC 2-205, 2-206, 2-104(1); R2-24, 25, 26, 36, 41(1), 41(2), 42, 43,
45, 59, 61, 62, 63, 68, 87(1)(a)

Negotiation and Closure: General questions

 What types of difficulties arise in determining whether a
contract actually exists, particularly when negotiations happen
orally or are based on past negotiations?
 What is the role of preparatory documents?
 What types of problems arise when a contract is vague?
 What can lawyers do to make agreements more clear?
 5. CB 141-156 (starting with C. Negotiation and Closure, Cases: Situation
Management v. Malouf, Arnold Palmer Golf v. Fuqua, and Empro
Manufacturing v. Ball-Co Manufacturing)
SS UCC 2-204; 2-305; R2-22(2), 27, 33
Handout 3: Formation in Complex Deals (case: City of Kennai v.
Ferguson)

Problems with Standard Form Contracts: General questions

 How does the UCC approach differ from the common law
approach with respect to contract formation?
 What issues are presented by standard form contracts and
“pay now, terms later” or “rolling contracts”?
 What is the “Battle of the Forms”?
 What scheme does UCC 2-207 establish for determining
whether a contract has been formed? And for determining what
are the terms of the contract?
 What is the rolling contract approach to contract formation?
 What is the reasonable expectations doctrine and how does it
produce a different result from 2-207 and rolling contract
approaches to formation?

6. CB 180-195 (starting with E. Problems with Standard Form Contracts.

Case: Gardner Zemke v. Dunham Bush);
SS UCC 2-207, 2-314, 2-316
Handout 4: Battle of the Forms Flowcharts – Common Law and UCC
Handout 4a: Shrinkwrap and Browserwrap (Cases: Klocek v.
Gateweay and Specht v. Netscape)
CB 216-224 (Case: Hill v. Gateway and C&J Fertilizer, through Note 2)

Statute of Frauds: General questions

 What is the Statute of Frauds (S/F) and what function does it
serve?
 What kinds of contracts typically fall under the S/F?
 What is typically required to satisfy the S/F?
 What counts as an exception to the S/F?
 What is the effect of failing to satisfy the S/F?

7. CB 227-236 (Case: C.R. Klewin v. Flagship, through Note 1), 242-256

(Cases: Conagra v. Nierenberg and Lige Dickson v. Union Oil)
SS UCC 1-103, 2-201, 2-104(1), R2-110(1), 131,132, 134, 135, 136, 139
Handout 5: Statute of Frauds Flowchart

Topic 3: CONTENTS OF THE CONTRACT

Interpreting the Terms of the Contract: General questions

  We have a contract, what are its terms?
 What will the parties be bound to (expressly and impliedly, e.g.
good faith)?
 What will courts “fill in” and what sources will they use in doing
so?
 How can parties change the terms of their agreement after
execution has begun?

Parol Evidence Rule: General questions

 What is parol evidence?
 What is the Parol Evidence Rule (PER) and when does it apply?
 For what purposes is parol evidence admissible, and for what
purposes is it not admissible?
 How is parol evidence similar to / different from usage?
 What distinguishes the traditional, “four corners” approach to
applying the PER from the more modern, contextual approach?

8. CB 257-271 (Cases: Baker v. Bailey and Masterson v. Sine, Problem:

Skip 4-1)
SS UCC 2-202, R2-204, 209, 210, 214, 215, 216
Handout 7: Parol Evidence Flow Chart

Interpretation: General questions

 When the parties disagree as to the meaning of the terms of
their contract, what techniques can courts use to resolve these
interpretation disputes?
 When do courts allow extrinsic evidence in to interpret the
words contained in the contract and when not?
 What about to supplement or qualify a contract?
 How is evidence concerning the commercial context or usage
treated differently from evidence concerning past /
contemporaneous negotiations?
 Do courts differ in how they approach interpretation? How so?
And what is the difference based on?

9. CB 275-298 (Cases: Random House v. Rosetta Books and WWW

Associates v. Giaconteri and Pacific Gas v. GW Thomas Drayage); 303-
315 (Case: Nanakuli Paving v. Shell)
SS UCC 2-202; 1-303; R2-202, 203, 205

10. Handout 8: Contract Interpretation Exercise (Answer questions based

on Renter’s Insurance Policy and Renter’s Insurance Policy Declaration
Page. Note: when you answer questions, please make Note of the
 particular contract provisions on which your answers are based)

Good Faith: General Questions

 What are some different approaches for defining good faith and
finding that the duty of good faith has been breached?
 What is required for the duty to be triggered / violated?
 What is the consequence of such violation?
 Can the duty of good faith be disclaimed in the K?

11. CB 322-323; 327-336 (Cases: Centronics v. Genicom (through Note 3)

and review Baker v. Bailey 259-262); 346 (Problem 4-3)
SS UCC 2-306(1), 2-305(2), R2-205

Warranties: General Questions

 What purpose do warranties serve? Who do they protect?
 What is the difference between an implied warranty and express
warranty?
 Which warranties can be disclaimed and how?
 What is required to make warranties actionable – the source of
a breach of contract claim? i.e. What does a buyer need to
show to make out a breach of warranty claim or “sue in
warranty”?

12. CB 356-370 (Cases: Carpenter v. Chrysler; Vlases v. Montgomery Ward;

Massey-Ferguson v. Utley through Note 1) and Note 1 at p379-380
Handouts 9, 9a, and 9b: Breach of Warranty (answer the questions as
you read the relevant UCC sections)
SS UCC 1-201(20), 1-304, 2-313, 2-314, 2-315, 2-316, 2-719, 2-601, 2-
602(1), 2-711(1), 2-714, 2-608

Modification: General Questions

 What is the old rule regarding modifying contracts and how was
it justified?
 What is the new approach to modification adopted by courts
today and how is it justified?
 What do courts now require in order for a modification to be
deemed enforceable?
 Under UCC 2-209 and R2-89, under what circumstances can a
waiver (voluntary abandonment of a contractual right) have a
similar effect as a modification?

13. CB 380-387 (starting with “Modifications”, Case: Angel v. Murray; Problem

4-6 Question 1) and Note 2 at p402
 SS UCC 2-209; R2-73, 89
Review of Topic 3: Contents of the Contract - In class practice test
(1hour)

Topic 4: LEGAL REGULATION OF CONTRACTS

Misrepresentation and Mistake: General questions

 When and how does the issue of misrepresentation or mistake
arise in a contract dispute?
 What is the legal effect of finding misrepresentation or mistake
in a contract dispute?
 What is required to make a showing of misrepresentation? What
about mistake?
 How does misrepresentation relate to breach of warranty?
 How does mistake relate to other contract law doctrines (e.g.
misunderstanding, impracticability / frustration of purpose)?

14. CB 410-428 (Cases: (misrepresentation) Weintraub v. Krobatsch; (mutual

mistake) Lenawee County Board of Health v. Messerly; cases
summarized in notes: Wood v. Boynton and Sherwood v Walker; Problem:
5-1)
Handout 11: Misrepresentation Questions and Hypos (answer questions
as you read relevant R2 sections)
SS R2-164(1), 161, 162, 151, 152(1), 154

Public Policy, Illegality, and Unconscionability: General questions

 Why do we need public policy, illegality, and unconscionability
“defenses” to enforcing contracts?
 When can public policy concerns, a finding of illegality, or an
imbalanced power relationship between the parties void the
contract?
 What are some of the risks involved with creating contract law
precedents on the basis of public policy considerations?

15. CB 431-432 (stop before Clouse v. Meyers), 436-448 (Case: Hopper v. All
Pet Animal Clinic);
SS UCC 2-302; R2-208, 178, 187, 188
Handout 12: Questions to Consider on Public Policy and
Unconscionability

16. CB 454-462 (starting with C. Unconscionability; Case: Williams v. Walker

Thomas) [maybe also the feminist version -- TBC]
SS UCC 2-302; R2-208
Handout 12: Questions to Consider on Unconscionability
  Watch this film: Lost in the Fine Print (you tube)
https://www.youtube.com/watch?v=tgC3N802Sjk
 New York Times, Arbitration everywhere and The Privatization of
the Justice System (on blackboard)

Topic 5: BREACH AND REMEDIES

Breach: General questions

 When does failure to perform as promised amount to a
breach?
 When is a breach material? Total?
 How does the determination that a breach is material / total
affect the parties’ respective rights under the contract?
 When can the non-breaching party safely take action in
response to a breach or expected breach by the other party?
 What is anticipatory breach or repudiation? When does it
occur? What are its consequences?

17. CB 686-704 (starting with Material Breach. Cases: K&G Construction v.

Harris—skim from last para on p690 to end of first para on p692 on
conditions—through Note 3 and Taylor v. Johnston through end of note 2)
Handouts 13 and 13a: Flowcharts re Self Help Remedies (read and
complete) and Questions re Self Help Remedies
SS R2-241, 242, 250, 251, 253, 378

18. CB 14-22 (Case: NIPSCO v. Carbon County), 727-729 (starting with C.

Impossibility; Cases summarized in notes: Taylor v. Caldwell, Alimenta v.
Gibbs, and Krell v. Henry).
Handout 14: When is Breach of Contract Excused? (Read and
complete questions re NIPSCO and Case: Alabama Football v. Wright)
SS R2-261, 262, 263, 264, 265; UCC 2-615

Contract Remedies: General questions

 What factors should an expectation measure of damages take
into account?
 What remedies does the UCC provide for buyers in the event
of breach by the seller? What remedies does the UCC provide
for sellers in the event of breach by the buyer?
 What limitations apply to the recovery of damages, and what
are the justifications for those limitations?
 In what circumstances might a reliance recovery be more
appropriate than an expectation recovery?
 In what circumstances might restitution be the more
 appropriate measure of recovery?
 Why might the parties choose to “liquidate” or agree on
remedies in advance of a breach? What factors might limit the
enforceability of agreed remedies?

19. CB 507-514 and Handout 15: Concepts, Terminology, and Hypos

(prepare answers to the questions – this is a substantial handout, prepare
it carefully)
SS UCC 2-714, 2-711, 2-712, 2-713, 2-715, 2-704(2), 2-706(1), 2-708, 2-
709(1); R2-344, 347, 350, 351, 352, 355, 356

20. Exceptions to normal measure of damages: 519-530 (Case:

Peevyhouse v. Garland Coal Mining, through Note 3.)
Handout 16: Lost Volume Sellers & Handout 17: Summary of UCC
Damages

21. Handout 18: Damages Cases and Hypos (Cases: Hadley v. Baxendale,
Manoucheri v. Heim and Walgreen Co. v. Sara Creek Property – prepare
answers to the questions)
CB 620-621 (C. Reliance - stop at Wartzman)
SS UCC 2-715(2), 2-716(1), 2-718(1), 2-719(3); R2-351, 349, 360,