Contracts Outline- Knapp

8/18/2019 Contracts Outline- Knapp

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Contracts Outline

1. Intro / Sources of Contract Law

I. Denition of Contract: A promise or set of promises that

is to be done in the future by one or both of them, and is

enforceable under law.

a. Contract as a Document: The set of papers in which

such an agreement is set forth

b. Contract for Lawyers: An agreement that has legal

eect, creating an obligation for which legal

enforcement will be aailable if

performance is not forthcoming as promised.

II. Three elements of a transaction; each may be

consiere a contract

a. The agreement in fact between the parties

b. The agreement as!written "which may or may not

correspond accurately with the agreement in

fact#

c. The set of rights and duties created by the agreement in

fact and agreement as written

III. Lawyers and $udges are inoled with: formulation, settling

disputes, deciding remedies for breaches

I%. Contact law is society&s legal mechanism for enforcing

agreements related to the transfer of property,

proiding serices, and payment of money.

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%. Sources of Contract Law

a. 'udicial opinion "common law, case law#( primary

authority

b. )tatutory * Treaty: )tatute of +rauds, CC Art. -,

CI)( primary authority

c. /estatements "ALI on the CC#( secondary authority

d. Legal Commentary "0illiston and Corbin Treatise#(

secondary authority

%I. !ers"ecti#e of Contract Theory

a. 0illistonian 1eriod: +ormalist approach, aimed at

reaching an ob$ectiely 2correct3 decision. 4o moral or

political alues were allowed to be used by $udges in

reaching decisions.

b. Legal /ealist: Decision ma5ers should use their own

personal iews, personalities, interests, and goals in thedecision ma5ing process. /ules e6ist to sere social

interest, not to be blindly applied as 2neutral principals3. sing

standards such as 2good faith3 and 2unconscionability3.

c. 7conomic 2e8ciency3: 9. /ules "esp. common law#

tend to reach e8ciency on their own. -. Any

ine8cient rules should be modied to increase their

e8ciency.

i. Chicago )chool: 1olitically and economically conseratie(

enforcement of ;s should only not be upheld

because of fraud or duress, not unfairness or

unconscionability.

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Feldman

i. Lawyer "1# contested charges from oogle Adwords

adertising campaign, claiming to not hae read the 2clic5 wrap3

agreement, but ; was upheld because 1 created account which

re>uired agreeing to the 2clic5 wrap3 agreement.

A.# Ob2ecti#e Theory of Contract "/ay#

i. The 2ob$ectie theory of contract3 is based how on a

2reasonable person3 would interpret a contract,

rather than how each party sub$ectiely

interprets the contract.

? Absent fraud or some other misconduct, parties are held to a

contract by mutual assent, een if there was no

meeting of the minds and the terms dier from what

the signing party sub$ectiely understood.

Ray

? "D# Contractor did not fully read contract for building a house

for "1# /ay, failing to discoer that dierent building

materials were specied than those in D@s original

proposal.

? 1epsi 1oints arrier 'et B 4o reasonable iewer could would

hae interpreted a harrier $et to be oered as premium for

purchase of soft drin5s.

.# O3er an cce"tance "Lonergan#

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(An oer has not been made if some further e6pression of

assent is needed from the party in the position to ma5e the oer.

Lonergan

I. D indicated in letter to 1 that he would hae to 2act fast

because I e6pect to hae a buyer in the ne6t wee5 or so3. Court

ruled this was not a denite oer because 1 had reason to beliee

that D needed to proide further assent before an oer was made.

? /-d - B Eer Dened

? An oer is the manifestation of willingness to enter into a

bargain, so made as to $ustify another person in

understanding that his assent to that bargain is inited

and will conclude it.

? Eer s. 1reliminary 4egotiations * Initation for an Eer

? 1ossible factors include: language of communication, use of

word 2oer3, prior communications, degree of agreement reached

oer terms, urgency, e6istence of other potential buyers

? /-d FG B Time 0hen Acceptance Ta5es 7ect

? nless the oer proides otherwise

? An acceptance made in a manner and by a medium inited by

an oer is operatie and completes the manifestation of mutual

assent as soon as put out of the oeree@s possession, without

regard to whether it eer reaches the oeror( but

?an acceptance under an option contract is not operatie until

receied by the oeror.

4ailbo5 / De"osite cce"tance 6ule

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? nder CI), time of acceptance occurs upon dispatch, but on

the condition that acceptance actually reaches the oeror in a

timely fashion.

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? 1 put in oer on house, D made changes and submitted

counteroer and then sold house to someone else, 1 then tried to

accept counteroer after he was notied of sale. 1 thought he had an

2option3 ; because he included it in his original oer.

? In order for an option contract to e6ist, there must be specic

language regarding oer being irreocable A4D there must be

consideration from the oeree "Jthere is an e6ception between

merchants for consideration if CC applies#

ii. /-d GF B


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Petterson.

ii. In regards to unilateral contracts, the oeror may reo5e the oer

at any time before the oeree completes the re>uired action.

? D promised to discount 1@s mortgage if paid o early in cash.

1 attempted to do so, but D informed 1 that he had sold the

mortgage and could no longer accept payment. Court

reasoned that D reo5ed oer before 1 nished the act "tendering

payment#, which meant that there was neer any unilateral ; formed.

? Dissent B D should hae been more specic as to whether or

not acceptance would occur when tendering payment was complete

or 1 beginning to tender

iii. /-d M B Eption Contract Created by 1art 1erformance or Tender

? "9# 0here an oer inites an oeree Nto enter into a unilateral

contract, the oer becomes irreocableO when the oeree tenders or

begins the inited performance or tenders a beginning of it.

? "-# The oeror@s duty of performance under any option contract

so created is conditional on the completion or tender of the inited

performance in accordance with the terms of the oer.

• /e$ects common law rule for reo5ing oers for unilateral ;s. In

short, when oeree begins the act they create an 2option3 to

complete the act and therefore complete the unilateral ;.

• When there is an ambiguity in the contract (K) interpret that ambiguity most

strongly against the party who caused it

i. Lost 2obo3 the cat ypo:

? /eward of KM to anyone who returns obo is an e6ample of

unilateral contract, because obo@s owner is see5ing the act of

returning the cat, rather than a return promise to nd the cat. Eer

could be reo5ed until cat is returned, hypothetically een if someone

has located the cat... nless following /-d M. Then oer cannot be

reo5ed to anyone who has located obo but hasn@t physically returned

it yet.

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Cook

. In a unilateral contract, the oeror can be held to their promise as

long as the oeree completes substantial performance in

accordance with the agreement..

i. J DE 4ET try to cram fact patterns into a unilateral contract.

They are ery rare and only occur when a single party has made a

promise and the other part is under no obligation to perform.

? Common e6amples include rewards and commissions and

bonuses for real estate bro5ers.

III. Letters of Intent 777

a. Letter of intent: Contemplates a more detailed and formal

contract will be e6ecuted in the future.

b. 0hether a contract is formed in cases of an agreement to

agree or formal contract contemplated turns on the factual >uestion of

whether the parties intended to be bound when they agreed in

principle or only after further negotiations proe successful. Quake

Construction

i. Ambiguity as to whether parties were bound by the letter of

intent in Pua5e could hae been aoided if the following clause was

included in the letter:

? This letter of intent is not a binding contract and the parties

only intend to be bound upon the completion of a formal contract.

ii. 0hen is a letter of intent bindingQ

? as agreement been reached on all termsQ

? Is the contract of a type usually put into writingQ

? ow much money is inoledQ

? as either party ta5en action in preparation of

performanceQ

? Is there a clause that no obligation e6ists until all terms are

assented toQ

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/-d -R B 76istence of Contract 0here 0ritten


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C.# Consieration

a. In order for a promise to be enforceable, must be supported

by consideration. b. 0hat is considerationQ

i. The promise to perform or refrain from performing a

legal act which is aluable to the other party.

Hamer ! As long agrees to refrain from doing something which they hae

a legal right to engage in, it will satisfy the consideration

re>uirement.

i. ncle promises to pay nephew KM5 if he refrains from drin5ing,

smo5ing, swearing, and playing cards "all legal at the time# until the

age of -9. 4ephew did refrain from these actiities, but uncle@s estate

refused to pay. Court held that there was enforceable ; supported by

consideration.

? J If uncle would hae promised money in return for nephew not

uses illegal drugs, there would hae been no consideration.

? If uncle were to hae told nephew that his oer was 2not

serious3, then court would hae considered whether a 2reasonable

person3 would hae considered the oer to be serious.

)impson ypothetical

i. omer is red from the power plant and brings suit against co,

claiming he was red because he was a whistleblower.


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/-d R9 B /e>uirement of 76change( Types of 76change

"9# To constitute consideration, a performance or a return promise

must be bargained for.

"-# A performance or return promise is bargained for if the promisor

in e6change for that promise see5s it.

"G# The performance may consist of

? "a# an act other than a promise, or

? "b# a forbearance, or

? "c# the creation, modication, or destruction of a legal

relation.

"# The performance or return promise may be gien to the

promisor or to some other person. It may be gien by the promisee or

by some other person.

Pennsy Suly

!There is consideration as long as the promisee ta5es on a detriment

and the promisor intended for this to occur, regardless of whether

there were negotiations, which indicated the e6act nature of the

detriment.

i. Court ruled there was consideration when D gae "1# 1ennsy

)upply a large amount of Agg/ite for free, when the Agg/ite could not

be disposed of without signicant cost to D, it was 5nown that D was

trying to aoid this cost, because 1 too5 on detriment of disposal fee

and D beneted.

? The process of bargaining is unimportant, as long as there is a

>uid pro >uo, so it is unimportant that the detriment ta5en on by 1

was not e6plicitly stated by D. ! olmesiam test for

consideration

!oug"erty

! 1romises of 2future gifts3 lac5 consideration and are not

enforceable.

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i. randma promised to gie grandson KG5 at some point in

future because 2she was always fond of him3.

? The mere recital of consideration in a contract is not enough to

proe consideration, if there was no actual >uid pro >uo.

? randma could hae simply gien grandson the money

immediately as a gift, written a will stating her intention, or put the

money is a trust set up for the grandson.

? J1erhaps if grandson would hae promised to write letters to

grandma eer month in return for the gift, there uacy of consideration is irreleant if it has been bargained

for. atsa5is

i. D promised K-5 American dollars for the e>uialent of K-M

ree5 currency.

? 7en a 2pepper corn3 of consideration is enough.

O"tion Contracts an Consieration i. Consideration is needed from oeree to ma5e an option

contract alid because the option itself is

aluable

ii. 7en a nominal amount of consideration is su8cient "M or 9

dollars#

iii.


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!)omething already done cannot constitute consideration for a later

promise.

? D promised to pay employees U of their salary because of their

hard a faithful wor5 oer the years, but then later stopped

payment. Court ruled there was no enforceable ; because employees

did not gie consideration.

? 1s argued that they were re>uired to pic5 up chec5s. Court ruled

that these only meant chec5s were conditional gift. 1erformance was

not bargained for.

? There would hae been consideration if employees were re>uired

to sign agreements before retirement waing right to future

employment by D E/ promising to train new employees on re>uest.

I. Illusory !romises an 4utuality of Obli%ation

i. /-d RR Comment a B A promise, een if bargained for, will not

sere as consideration if it is 2illusory3 ! if it ma5es performance

entirely optional with the promisor.

? 1romise to do something if you feel li5e it does not proide

consideration, because promisor can wal5 away at any time ! but een

a peppercorn of consideration is enough.

? 7mployment 2at!will3 is one e6ample of an illusory promise, because

the employer can terminate the employee at any time for any

reason.

? If = promises to buy house from I+ = can get a mortgage at FV or

lower. This is 4ET as illusory promise, because = has made a

promise conditional on an eent which is out of his control "getting

mortgage for FV or lower#

ii. 4utuality of obli%ation 9 both "arties must be boun or

neither is boun.

? This concept is oerly broad and not the ma$ority rule.

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? nilateral contracts do not hae mutuality of obligation because

the promisee is free to perform or not and the promisor is bound

once the promisee tenders a beginning of performance.

D.# 6eliance

a. rounds for Contractual Liability

i. argain: based on e6istence of a formal contract

ii.J 1romissory 7stoppel: 1rotects reliance interest

iii. /estitution: protects against un$ust enrichment "liability

based on benet conferred#.

b. /-d W B 1romise /easonably Inducing Action or +orbearance

i. "9# A promise which the promisor should reasonably e6pect to

induce action or forbearance on the part of the promisee or a thrid

person and which does induce such action or forbearance is binding if

in$ustice can be aoided only by enforcement of the promise. The

remedy granted for a breach may be limited as $ustice re>uires.

ii. "-# A charitable subscription or a marriage settlement is

binding under )ubsection "9# without proof that the promise induced

action or forbearance.

? 7lements

? 9. A promise

? -. 0hich the promisor reasonably should e6pect to induce

reliance

? G. /eliance in fact

? . In$ustice can be aoided only by enforcement

%irksey

!D told his widowed sister!in!law "1# that she should sell her land

and moe some distance to his land where he would proide her with a

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house and farmland so that she can raise her family. 1 did so only for D

to 5ic5 her out two year later. Court ruled there was no contract and

D@s promise was unenforceable.

i. This case would hae li5ely been decided dierently if court

would hae applied /-d W.

Har&ey

!1romissory 7stoppel: 7en if lac5ing consideration, a promise

which the promisor should reasonably e6pect to induce action or

forbearance on the part of the promisee or a third person and which

does induce such action or forbearance is binding if in$ustice can be

aoided only by enforcement of the promise. JJJ 1romises can be

e6press E/ implied.

i. 1 was D@s daughter. D allowed 1 to build K-5 house on his

land and een helped build the house. 1 alleged that D had generally

promised to coney the land upon which the house was built, but D

neer made an 2e6press promise3. Court ruled that D@s actions

amounted to an implied promise which 1 had relied on to her

detriment.

? If promisee ma5es substantial improements to land based on

promise to coney, courts will usually uphold promise een if lac5ing

consideration.

%ing

!1romissory estoppel may apply to charitable donations, but courts

are reluctant to apply /-d W"-# and will usually loo5 for consideration

and a bargain.

i. ;ing stated in letter to "d# that he would send them his

papers and they were to ta5e good care of them and would retain

possession upon his death. Court ruled that ;ing@s re>uest for to

ta5e good care of the papers could be consideration and @s actions

to presere the papers "hiring employees, inde6ing, etc# could be

consideration detrimental reliance.

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? Although /-d does away with the re>uirement of detrimental

reliance for charitable donations, not many courts hae adopted this

rule. oweer, the courts will loo5 for consideration, such as the

promise to memorialiHe the donor@s name, een if this promise is

implied "Allegheny College#. The courts will also apply promissory

estoppel, considering whether the donor@s promise was relied on to the

charity@s detriment.

%atz

!1romissory estoppel re>uires a 2change in position3 by party who

relied on promise

i. 1 was an at will employee of D, when 1@s retirement was

induced by the promise of a pension, which D later reduced, at which

point 1 was R years old and could no longer wor5 full time. Court ruled

that 1 had changed his position due to D@s promise of a pension, and

the change was to 1@s detriment since 1 was too old to wor5 a full time

$ob. Did 4ET matter than D could hae red 1 w* no pension.

? 1romissory estoppel based on what DID happen, not what

CELD hae happened.

? Change is position does not een hae to leae 1 nancially

worse o

'astoler

!1 accepted promotion based on promise of pension benets.

Court ruled that 1 changed his position based on the promise, and bc

the promotion would place 1 in a position w* more responsibility and

stress, it could be seen as detrimental reliance. ! 24ot eeryone wants

to be a C7E3

D() Stout

!1 relied on acardi@s promise to 5eep them on as 2at!will3

distributor when negotiating sale of business. acardi pulled out right

after D turned down an oer, which led to the businesses eentually

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being sold for KMM5 less. Court ruled that D had relied on acardi@s

promise to its detriment when it turned down the original oer.

e.# !re(cce"tance 6eliance: O3ers u"hel by !romissory

sto""el

a. /-d B Eption Contract

i. "9# An oer is binding as an option contract if it

? "a# is in writing and signed by the oeror, recites a purported

consideration for the ma5ing of the oer, and proposes an

e6change on fair terms within a reasonable time( or

? "b# is made irreocable by statute

ii. "-# An oer which the oeror should reasonably e6pect to

induce action or forbearance of a substantial character on the part of

the oeree before acceptance and which does induce such action or

forbearance is binding as an option contact to the e6tent necessary to

aoid in$ustice.

*ames #aird

!)ub!contractor oers are submitted for the general contractor@s

acceptance upon being awarded a bid, 4ET acceptance when the

general contractor merely ma5es the bid.

i. ' realiHed its bid for linoleum was incorrect and withdrew

before C accepted, but not until after C had submitted its master

bid. C@s bid was accepted and tried to hold ' to its bid, but they

refused. Court decided to apply traditional rules of oer andacceptance and refused to apply promissory estoppel to an oer.

ii. Court reasoned that promissory estoppel should only apply

when there is a promise supported by consideration, and an oer is not

supported by consideration, especially considering that in 'ames aird

the C could hae simply shopped around for a better bargain.

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iii. oweer, if )C would hae bargained with C that it was

submitting its bid for the promise that C would accept the bid if its

master bid was accepted, then this would hae created a contract w*

consideration.

!rennan

!0here the sub!contractor submits a bid to the general contractor,

who then relies upon it in guring his own oer!all bid, the

subcontractor&s bid is usually held to be irreocable for at least the

time necessary for the general contractor to obtain the $ob and then

accept the sub!contractor&s bid.

i. ), a sub!contractor, submits a written oer for paing to , a

general contractor. )ince )&s bid is the lowest, relies on it in

preparing its own bid, and also submits )&s identity as re>uired in the

bidding procedure for the general contract. ) then noties that its

bid was too low because of an error. &s bid on the general contract is

accepted, and ) refuses to perform.

? Court is basically writing an option into the contract because

the C relied on the contract when formulating its own bid.

? This creates a 2one way3 liability, since the )C is bound to their

oer, but the C is not bound to acceptance.

? J This rule is really only applied to subcontractor B general

contractor situations

#erryman

!The mere recital of consideration and a non bargained

performance does not ma5e option enforceable, re$ecting /-d XR"9#.

i. erryman gies ;moch 9- option to buy property, but ;moch

neer paid the K9 recited as consideration in the oer. ;moch went

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out and tried to nd inestors, but the option promise did not bind

;moch to do this this, so there was no bargain for it... no >uid pro >uo.

? /easoning: Eeree usually can protect themseles by using

better language or accepting the oer.

ii. If ;moch would hae paid the K9, specied that nding

inestors was consideration, or had een $ust promised to pay the K9,

then the option would hae been alid.

iii. 7en though the option wasn@t alid, ;moch could hae

accepted the oer, but erryman sold the house and notied ;moch

through an agent "ban5# which reo5ed the oer before ;moch could

accept.

Po+s Cones

!Courts will generally only apply promissory estoppel to a promise

made in pre!contractual negotiations which is not 2clear and denite3 if

there is a note of intent or some type of bad faith B re$ecting /-d XR "-#

i. 1 was in negotiation w* D on leasing property to moe 1@s

business. D told 1 to pac5 up their present store and get ready to

moe. 1 did so, and then D pulled out of deal, leaing 1 w* no place of

biH. 1 lost seeral months of biH as a result and sued D to recoer.

? Court rela6ed the re>uirement for a 2clear and denite3 promise

bc D had 2strung along3 1 for close to - years and then pulled out in

order to gie the lease to another biH for more money... bad faith.

? This again e6emplies courts hesitancy to apply promissory

estoppel to oers, since it re>uires creating an option contract out

of thin air and ignoring the traditional rules of oer and acceptance.

+.# 6estitution 9 &n2ust nrichment

a. /-d XF! 1romise for enet /eceied

i. "9# A promise made in recognition of a benet preiously

receied by the promisor from the promisee is binding to

the e6tent necessary to preent in$ustice.

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ii. "-# A promise is not binding under subsection "9#

? "a# if the promisee conferred the benet as a gift or for other

reasons the promisor had not been un$ustly

enriched( or

? "b# to the e6tent that its alue is disproportionate to the benet

b. /-d GR9 B uires be measured by either

? "a# the reasonable alue to the other party of what he receied in

terms of what it would hae cost him to obtain it from

a person in the claimant@s position, or

? "b# the e6tent to which the other party@s property has been

increased in alue or his other interests adanced.

c. 6estitution in the bsence of a !romise ( Im"lie at Law /

uired for the

protection of another@s life or health is entitled to restitution from the

other as necessary to preent un$ust enrichment, if the circumstances

$ustify the decision to interene without re>uest due to the patients

mental state, incapacity, etc. /ecoery is limited to the reasonable

alue of the benet conferred.

? D was admitted to hospital against his will under an emergency

hospitaliHation order and refused to sign release form holding him

accountable for payment. 7entually D did sign the form, but was later

released after it was found that no further treatment was needed.

? Court reasoned that D@s admittance by the emergency

hospitaliHation order was proof that the serices were necessary at the

time that he was admitted. That he was released later only indicated

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that no further care was needed. The court order which admitted D

against his will was issued because it was found that he was of danger

to himself and other, so the court found that the hospitaliHation did in

fact confer a benet to D and therefore he would hae to pay the bill.

ii. Implied at law or Puasicontracts are not 2real contracts3 so

the general rules of contracts do not apply to them.

iii. Distinction between implied in fact contracts and restitution is

often whether the party receiing the benet of serices or property

had re>uested it.

i. Implied in law * >uasicontracts also may e6tend to protection

of property as well as life and health.

? n$ust enrichment in this case is measured by the loss aoided

or by a reasonable charge for the serices proided, whicheer is L7)).

? i.e. car is stolen and police nd it and hae it towed and stored

by a garage. )ome months go by before owner is located and in the

mean time owners insurance co has paid owner@s claim and ta5en title.

After police locate the owner, the insurer reta5es possession of the car.

Absent a statute to contrary, the garage would hae a claim in

restitution against Insurer for the fees of towing and storing, not to

e6ceed the alue of the car.

. 7conomic theory of restitution: Law implies a contract when

transaction costs are high "patient is bleeding out and there@s no time

to discuss matters#, but if the transaction costs weren@t so high the

parties would hae come to an agreement "doctor renders serices to

sae patient and patient agrees to pay doctor@s normal fees#.

Commerce Partners"i

! A subcontractor may recoer in restitution ">uasicontract# from

an owner when the owner has not paid the general contractor for the

wor5 performed and the subcontractor has e6hausted its remedies

against the general contractor.

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i. 1 ")C# performed stucco application on D@s property. 1 was

neer paid by C so they brought action against D to recoer on the

basis of restitution claiming that D had been un$ustly enriched by 1@s

performance. Court held that 1 would hae to proe that D didn@t pay

the C for the wor5 and that 1 had e6hausted all eorts to recoer

from C before they could recoer in restitution from C.

? The idea is that 1 must show that D was actually un$ustly

enriched...

,atts

!4on married couples who split up may be entitled to recoer based

upon contract implied in fact and in un$ust enrichment.

Three "art test for un2ust enrichment:

? 9. a benet conferred on the D by the 1

? -. appreciation or 5nowledge by the D of the benet, and

? G. acceptance or retention of the benet by the D

ii. Implied in fact contract supported by actions such as a shared

ban5 account, $oint ta6 return, naming beneciaries for life insurance

policies, etc.

? 0oman sued man with whom she cohabited with for 9- years

and gae up professional opportunities and proided serices for him

instead "including his business# and man@s net!worth increased

signicantly oer the period of cohabitation. ually in the wealth accumulated

during their relationship. ased on moral principle that one who has

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receied a benet has a duty to ma5e restitution where retaining such

benet would be un$ust.

? 1ublic policy against such claims is that the parties could hae simply

gotten married.

? In terms of same se6 couples, if they are not able to get married, the

unaailability of marriage would actually strengthen one

partner@s position to recoer, bc the option of marriage would be

unaailable as an alternatie

!romissory 6estitution +un2ust enrichment,

-ills

!The law will not uphold eery promise made on the basis of a

2moral obligation3.

?D&s son, a -M!year!old, becomes ill while traeling, and is nursed

by 1. D later writes to 1, promising to pay 1&s e6penses. The court

hearing the case "in 9X-M# held that D&s promise was not supported by

current consideration, since 1&s serices were not gien at D&s re>uest

"no bargain#.

,e !Court may choose to enforce the promise where the benet to the

recipient of the serices "and* or the cost to the proider# was

substantial.

? A saes &s life in an emergency, and is totally disabled in so

doing. then promises to pay A K 9M eery two wee5s for the rest of

A&s life, and ma5es these payments regularly for oer eight years until

he dies. The estate then refuses to continue the payments and A sues

on the promise. eld, &s promise is enforceable, een without

consideration, because incurred a substantial material benet from

A&s act, een though did not re>uest the act.

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intended to ma5e a contract and there is a reasonably

certain basis for giing an appropriate remedy.

*annusc"

. CC only applies to contracts where the 2predominant purpose3

is for the sale of goods... sale of goods cannot be 2incidental3.

i. nder CC:

? Contracts may be enforceable een if some terms are missing or

still need to be agreed upon. 7ssential terms of a contract for sale of

goods can be only the sale price and generally what is to be

coneyed.

? /e$ection of goods must be within a reasonable time.

? 4ot necessary for meeting of the minds to occur if parties

conduct indicates an agreement to the terms.

? Anticipation of a formal written document does not ma5e oral

agreement unenforceable... e6ception to )E+.

? Contracts may be enforceable een if e6act moment of creation

is un5nown.

? )E+ does not apply when there is part performance, such as

partial payment and ta5ing possession of the goods.

.# irm O3er

CC -!-M B +irm Eers

i. An oer by a merchant to buy or sell goods in signed writing

which by its terms gies assurance that it will be held open is not

reocable, for lac5 of consideration during the time stated or if no time

is stated for a reasonable time, but in no eent may such period of

irreocability e6ceed three months( but any such term of assurance on

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a form supplied by the oeree must be separately signed by the

oeror.

CC -!9"9# Denition of


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iii.J According to common law if a consumer ma5es an option

promise, then consideration must be supplied and bargained for.

i.# 8attle of orms

CC -!-R B Additional Terms in Acceptance or Conrmation

"9# A denite and seasonable e6pression of acceptance or a

written conrmation which is sent within a reasonable time operates as

an acceptance een though it states terms additional to or dierent

from those oered or agreed upon, unless acceptance is e6pressly

made conditional on assent to the additional or dierent terms.

"-# The additional terms are to be construed as proposals for

addition to the contract. etween merchants such terms become part

of the contract unless:

? "a# the oer e6pressly limits acceptance to the terms of the

oer(

? "b# they materially alter it( or

? "c# notication of ob$ection to them has already been gien or

is gien within a reasonable time after notice of them is

receied.

?"G# Conduct by both parties which recogniHes the e6istence of a

contract is su8cient to establish a contract for sale although the

writings of the parties do not otherwise establish a contract. In such

case the terms of the particular contract consist of those terms on

which the writings of the parties agree, together with any

supplementary terms incorporated under any other proisions of this

Act. 8 . Applies to two di situations:

i. Terms in purchase order form, and terms in response from, with

terms that do not match.

ii. %erbal contract between buyer and seller, which is then

followed up by written conrmation.

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Princess Cruises

i. CC can apply to 2mi6ed contracts3, but only if the contract is

predominantly for the sale of goods, ta5ing into account the following:

? Are goods inoled incidental to the rendering of sericesQ

? Does the language of the contract state that it is predominantly

for sericesQ

? The nature of the parties inoled "primarily serice or retail

basedQ

? The intrinsic worth "alue# of the goods inoled

ii. If the CC does not apply, then common law principles will be used,

which obsere the 2last shot3 rule, where the last alid oer sent

will be considered the nal contract.

iii. If a party returns a counteroer which materially changes the

original oer, assent is proided by the receier of counteroer@s

written or oral assent, action, or inaction.

i. 0hat if the CC would hae appliedQ

? CC would say that $ust because 7@s boilerplate was di, it did

not constitute a counteroer

? proision limiting damaged would prob not come in then bc it

was a material alteration.

? Enly real way for 7 to get that proision into the contract is to

re>uire 1rincess to 7=1/7))L A/77 to adding the term.

#rown

!Loo5 for who has made the rst oer "inites acceptance which will

conclude the bargain#.

? 0hoeer has made the rst oer has the 2higher ground3

? sually the buyer sends the rst oer, because price >uotes

generally do not constitute an oer

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? nder the CC, een if there are additional*dierent terms in

the acceptance it still amounts to acceptance rather than

a counter!oer

? etween merchants, the these additional*dierent terms

become part of the contract 4L7)) they materially alter the contract

"which is most of time#

? J Enly way to get in these terms is to ma5e the counter!oer

7=1/7))L CE4DITIE4AL upon the acceptance of the terms. Language

needs say that erbatim.... can@t say 2limited to these terms3 or

anything li5e that "party who sent counter!oer refuses to moe

forward with out acceptance#.

? )eller@s acceptance "counter!o# didn@t use specic enough

language to ma5e the buyer@s acceptance e6pressly conditional

"language was 2limited to these terms3#, so that was the second stri5e.

!eFontes

!CC -!-R does 4ET apply to 2shrin5 wrap3 agreements "often

sent along with merchandise ordered by customer#.

ii. )hrin5 wrap terms are an oer which can be accepted by

consumer by holding on to goods, as long as language of terms is

2su8ciently clear3 that the oer can be refused by returning the

merchandise with in a certain period of time.

? /easoning is that the purchaser is not ma5ing an oer when

they order... rather the endor is ma5ing the rst oer and is therefor

2master of the oer3, with the purchaser accepting the shrin5 wrap

agreement if they fail to return the merchandise with in the time

specied by the endor.

? )CET) also reasoned that public policy demanded that

customer not be re>uired to go through the 2sadistic3 process of being

read boilerplate terms oer the phone when placing an order for

merchandise.

JJI


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i. If either party is not a merchant, then additional terms will be

treated as proposals and dierent terms will be oid, with the terms of

the original oer preailing.

? Enly between merchants is there an e6ception for

dierent*additional terms coming in unless they 2materially alter3 the

contract.

4aterially lter

? means if the dierent*additional terms shift ris5 is a signicant way

? surprise the oeror "they would hae no reason to 5now of them#

iii.J etween merchants, if acceptance is made e6pressly conditional

to a counter!oer, then there is 4E acceptance unless the original

oeror agrees... this is 5nown as a 2conditional acceptance3...

? 4L7)) the parties perform as if there was a conduct, in which

case the dierent terms are 25noc5ed out3 and replaced w*

general CC terms.

G.# s a. Is a erbal contract enforceableQ

i. es, but )E+ denes what 5ind of contracts need to be in

writing.

b. 1olicy behind )E+:

i. party could point to lac5 of signed writing that show that

contract didn@t e6ist, when a alid oral contract did e6ist

ii. possibility that contracts could be 2created3 out of thin air, bysomeone lying about creation of oral contract

c. Courts hae tended to construe the )E+ narrowly, faoring

enforceability of oral contracts

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D. SO cate%ories

i. e6ecutor*administrator

? promise by e6ecutor to pay for debts of diseased out of their

own funds fall under )E+

ii. )uretyship

? The promise to guarantee the debt of another person has to be

in writing

? courts interpret narrowly, only if promise is made to creditor, or

doesn@t need to be in writing if promise is made

2selshly3

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? 0hether facts inole issue which falls within one of the aboe

categoriesQ

? 5eeping in mind courts dene categories narrowly

? whether writing and signing re>uirements are metQ

? Terms of writing and signed by party against who enforcement

is sought

? If there is not su8cient writing*signing, would contract still be

enforceable under an e6ceptions "ie reliance, part

performance "restitution#, CC -! -9 76ceptionsQ#

i#. 6eBuirement of si%ne writin%

? Does not need to be 2formal3 writing

? J2signed3 includes any symbol e6ecuted or adopted with present

intention to adopt or accept a writing.

? 'ean!uiat! famous artist which wrote contract in

crayon for sale of art pieces for K5 each. nder CC, sale of goods for

oer KM need to be in writing, but what does the buyer hae to show

for crayon contract to be alid

? Can be mista5es in the writing, but ; is only enforceable as to

what@s written

? 7lectronic signatures are accepted as e>ual to handwritten

signatures

Cratree

!A contract which satises the )E+ may be comprised of more than

document, een if one is signed and another unsigned, as long as they

refer to the same sub$ect matter or transaction.

? 7scalating salary structure was longer than one year so it fell

with in )E+.

? The terms of the agreement were $otted down by secretary, but

not signed.

? 1ayroll card referring to same agreement but w* no details was

signed by company@s agent.

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/laska !emocratic Party

!An oral contract which falls within the )E+ but fails to meet the

writing*signing re>uirements may still be enforceable under

the theory of reliance.

6eliance

9. A promise

-. 0hich the promisor reasonably should e6pect to induce

reliance

G. /eliance in fact

? . In$ustice can be aoided only by enforcement

? JJJ uantity which has

already been paid for or deliered.

? J In ualoe, there was an oral agreement and 1 deliered

chec5 for M5 which was rst installment for M barns that he purchased.

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Court ruled barns were goods bc they were moeable. The chec5 did

not satisfy )E+ alone bc it was not signed by seller. oweer, court

ruled that barns had been deliered to 1 since he was paying insurance

on them and 6ing them up, so under CC the contract was upheld

under the part performance e6ception.

C"ateau des C"armes ,ines

!nli5e the CC, contracts do 4ET hae to be in a signed writing

under CI).

?nder the CI), if additional or dierent terms are proposed after

a contract is concluded, the oeror must e6pressly consent to

these additional or dierent terms. The addition of the forum

selection clause material altered the terms, and 1 did not

e6pressly consent, and their conduct was not su8cient to proide

consent either.

?1 and D had an oral contract, with 1 submitting the oer and D

accepting during a phone call. D shipped wine cor5s w* forum

selection clause, which court held to be inalid because it was not

e6pressly agreed to by 1 after the oral contract was concluded.

SO Chec List

i. Is there a )E+ issueQ

? 0hether erbal promise falls within one of the si6 )E+

categoriesQ

ii. If yes, then hae writing and signing re>uirements been metQ

? Is it signed by party against whom enforcement is being

soughtQ

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? uantity,

and any symbol which represents a signature

iii. Statutory e5ce"tions to SO

? reliance e6ception /-d "rice . alas5a# B not ma$ority

? 0as the a promise that written agreement already e6isted or

would be created

? /estitution "notes after Alas5a#

? has there been part performanceQ

? part performance under CC "bualoe#

? manufacture of 2custom goods3 under CC

? merchant conrmation under CC

? admittance to e6istence of contract under CC

$III. Defenses to Contract nforceability

a. Inca"acity

i. 0ays on policing the bargain

? 9. policing based on the status of the parties

? -. conduct

? G. substance

ii. )tatus

? categories based on incapacity

? infancy

? mental incapacity "/-d )ection 9M#

? into6ication "/-d section 9F#

? "historically# married women

? "historically# slaes

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iii. Contract is not automatically oid due to incapacity, but oidable

by the party who can claim 2incapacity3. )o once incapacity is gone

then the party can choose to dis!a8rm or ratify the contract.

? If party dis!a8rms, then Q

!odson

!If contract with minor is fair and reasonable, there has been no

undue inSuence, and the minor has actually paid money and used "or

damaged# the merchandise "or serice#, the minor cannot rescind the

contract and collect a refund without proiding compensation for the

use of, depreciation, and willful or negligent damage to the

merchandise.

? There is an e6ception for 2necessaries3 in order to encourage

parties to conclude contracts with minors or necessary goods and

serices

? Ether e6ception is if minor misrepresented their age

? Ence minor reaches age of 9X, they hae the power to ratify or

dis!a8rm a contract entered as a minor...

? If they continue to obsere the contract for any substantial

period after reaching age of 9X, the contract is considered ratied,

een if the minor has not e6pressly done so.

b. Duress an &nue InEuence

i. /-d 9RM B 0hen Duress by Threat


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-. 1 had a lac5 of reasonable alternatie

G. D@s threat lead to actual inducement of the contract

!0hat is an improper threatQ

? Threat is criminal, illegal, threat of criminal prosecution, E/

? Threat made in AD +AIT "as was in Totem#

! 0hat does it mean not to hae 2reasonable alternaties3Q

? %ictim is fearful of going to prison or in$ury

? 7conomic threats, where ictim is facing ban5ruptcy or

nancial ruin

? ow /7)TITTIE4 comes into playQ

? if contract is found unenforceable in order to preent un$ust

enrichment the parties must return the benets conferred

? JJJ 5ey issue is whether the threat was wrongful or not

? is party e6ploiting the nancial situation of other party E/ is

there a genuine dispute of what is owedQ

? In Totem, D was e6ploiting 1@s nancial state and actually

;470 about the nancial condition of 1@s business.

9rdizzi (Undue Infuence)

? ndue inSuence inoles the use of e6cessie pressure by a

dominant party in oercoming the will of a ulnerable person.

? /-d 9RR B 0hen ndue InSuence


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?J Is the ictim pressured into the contract by someone who they hae

reason to trustQ

? 76. the ictim has a relationship with the dominant party such

as a duciary or someone else who they beliee has their

best interest in mind.

?Courts place a lot of weight on this factor.

? ow does duress dier from undue inSuenceQ

? In duress it@s all about the threat inducing the promise

? ndue inSuence loo5s at the circumstances which cause one

party to be serient.

c. 4oication.

! /-d RG B 1erformance of Legal Duty

? 1erformance of a legal duty owed to a promisor which is neither

doubtful nor the sub$ect of honest dispute is not consideration( but a

similar performance is consideration if it diers from what was

re>uired by the duty in a way which reSects more than a pretense

of bargain.

ii. /-d XW B


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/laska Packers : Pre4e;isting !uty Rule

?


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? In Lenawee County, the buyers and sellers of an apt

comple6 were not aware that the septic system was not up to code and

made the property uninhabitable. oweer, buyer signed ; w* as is

clause and did not thoroughly inestigate the septic tan5.

i. 0hen might courts actually nd that ; can be rescinded due to

mutual mista5eQ

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oidable by him if he does not bear the ris5 of the mista5e under the

rule stated in sect 9M, and

? "a# the eect of the mista5e is such that enforcement of the ;

would be unconscionable, or

? the other party had reason to 5now of the mista5e or his fault

caused the mista5e

,il4Fred+s ( nilateral


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? In case that false statement was not made on purpose, if party

claiming misrepresentation could hae discoered that the statement

was false then they cannot rescind. "e>ual access to information#.

? oweer, more li5ely party can rescind if false statement made

on purpose, een if they could hae discoered it was untrue.

>onisclosure

!/-d sect 9F9

! a party has an a8rmatie duty to disclose

? a! to preent a preious assertion from being a

misrepresentation

? b! to correct a material mista5e of the other party if good faith

re>uires disclosure.

? when does a duty of good faith re>uire a duty to

discloseQ

?1arty actually 5nows of the defect.

? If the defect is material and is not discoerable through

reasonable care

? If the seller is actiely concealing something with the

intent to hide it from the other party then this is

fraudulent

? I


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obserable and are not 5nown to the buyer, the seller is under a duty

to disclose them to the buyer. The Court held that the e6istence of

termite damage is su8ciently material to warrant disclosure.

? Important to consider:

?Does the seller actually 5now of the defectQ

? Is the defect materialQ

? Could the buyer hae reasonably discoered the defectQ

? Did the buyer try to actiely conceal the defectQ

f. &nconscionability an !ublic !olicy

i. /-d -X B nconscionable Contract Term

? If a contract or term thereof is unconscionable at the time of

the contract is made a court may refuse to enforce the contract, or

may enforce the remainder of the contract without the unconscionable

term, or may so limit the application of any unconscionable term as to

aoid any unconscionable result.

ii. CC !-!G- nconscionable Contract or Clause

iii. If the court as a matter of law nds the contract or any clause

of the contract to hae been unconscionable at the time it was made

the court may refuse to enforce the contract, or it may so limit the

application of any unconscionable clause as to aoid any

unconscionable result.

i. 0hen it is claimed or appears to the court that the contract

or any clause thereof may be unconscionable the parties shall be

aorded a reasonable opportunity to present eidence as to its

commercial setting, purpose and eect to aid the court in ma5ing the

determination.

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? asic test is whether in light of the general commercial

bac5ground and the commercial needs of the particular trade or case,

the clauses inoled are so one sides as to be unconscionable under

the circumstances e6isting at the time of the ma5ing of the contract.

? )ubsection "-# ma5es it clear that it is proper for the

court to hear eidence upon these >uestions.

? The principle is one of the preention of oppression and

unfair surprise and not of disturbance of allocation of ris5s because of

superior bargaining power.

,illiams

? nconscionability consists of an absence of meaningful choice on the

part of one of the parties together with contract terms which are

unreasonably faorable to the other party.

? 1rocedural nconscionability

? Lac5 of choice by one party or a defect in the bargaining

process

? Puasi!fraud or >uasi!duress

?)ubstantie nconscionability

?/elates to the fairness of the terms of the resulting bargain.

JJ enerally both procedural and substantie unconscionability are

re>uired JJ

? Jnconscionability must occur at time ; was made.

? JCourts more li5ely to apply unconscionability to a single

clause in a ; rather than the whole thing.

? oweer, in certain circumstance een an e6cessie

price has led to nding of unconscionability, especially

when there is signicant eidence of procedural

unconscionability.

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Higgins "nconscionability Applied to uic5ly

? The arbitration clause was not in CA1) and was otherwise

buried in other boilerplate terms

Aspects of )ubstantie nconscionability

? Arbitration clause was ery one sides

? D was not bound by clause to arbitrate

? 1 children were re>uired to partially pay for e6pensie

arbitration

!!Court decided that arbitration clause was so one sided that it should

be seered completely from the ;.

? 1erhaps if it wasn@t so one sides the court would hae $ust

modied the clause, maybe $ust re>uiring the D to pay completely

for arbitration.

?J rounds for substantie unconscionability: one party gets to chose

arbitrator, only one side bound, party who is less nancially capable

bears e6cessie costs which limits access to arbitration.

? nconscionability has to be limited to the specic arbitration clause

and 4ET arbitration in general, because of the +ed. Arbitration Act

faors upholding arbitration in general.

? As a result, hae to show both procedural and substantie

unconscionability applies to arbitration clauses on

a case !by !case basis.

?It would be di8cult for a business to claim an arbitration clause is

unconscionable because they are presumed to hae the resources to

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aoid the procedural and substantie aspects of unconscionability. i.e.

legal representation and bargaining power.

?oweer, courts hae found that in some circumstances where

a smaller business is dealing with a much bigger business that has

substantially more bargaining power, there may be grounds for

unconscionability as long as the procedural and

substantie elements are met.

!ublic !olicy

? Common Areas where courts will not uphold ;s due to public policy

9. /estraints of Competition

? coenants not to compete

? Disruptions of family relations

? 76. 0atts and // .


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ii. Addresses current deelopments outside of

common law practices

iii. Deelops solutions to problems yet to be

brought before a courts

&niform Commercial Coe +&CC,

i. uirement for a

contract to be in writing

ii. oweer, eery state with the e6ception of

Louisiana has a statute of frauds that re>uires

contracts to be in writing.

$ocabulary

1. Contract

a. A promise or a set of promises by which the law recognizesa duty, and a breach of which the law gives a remedy

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b. Product of consensual relationship

2. Promise

a. A commitment to do something in the future

3. ift v. Contract v. !arter

a. Contract " intent to be legally boundb. ift " donative intent #$%&c. !arter ' present e(change

A. Causes of Action

1. )raditional Contract

a. *uties defined by private partiesb. Punitive damages rarely available

2. Promissory +stoppel

a. A party reasonably relies to their detriment on the promise of another

b. #riginally an alternative to contract recovery - out of pocete(penses/, however modern trend toward full traditionalcontract recovery

3. 0nust +nrichment

a. +uitable doctrine in absence of consent bridges contractsand torts/

b. ociety imposed dutiesc. +(ample4 Painter shows up to paint your house when he has

the wrong address and you watch him paint5you owe thepainter for the ob

6. )ort

a. *uties imposed by society on private partiesb. Punitive damages availablec. Assent not necessary

7. Criminal %aw

a. *uties imposed by society8enforced by the stateb. Punishment, protection, deterrence

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!. Purposes of Contract %aw

1. 9ow do courts determine which agreements are worthy of udicial enforcement:

2. Consent )heory

a. Parties consent to a legally enforceable agreement andintend to be legally bound

3. ;ill8Autonomy )heory most prevalent theory/

a. eliance8?airness )heory

a. ?airness to the promiseeb. *etrimental reliance

i.


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K $ontractual %ntent

&''er cceptance

$onsideration$ertain erms

B. >elational )heory

a. +mphasis on pre"e(isting social and political relationshipsand how they operate together to influence transactions

C. Public Policy +nforcing Promises

1. %aw and Policy

a. #utside circle4 contract cannot be illegal8against public policyb.

Contracts Outline- Knapp

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Transcript of Contracts Outline- Knapp