Contracts Long Outline

I. Introduction

Restatement

  1. § 1: Contract: promise/set of promises which if breaches law gives remedy, or the performance which law recognizes as duty § 1
  2. § 17 Bargain: contract requiresBargain with manifestation of mutual assent to exchange and a consideration § 17
  3. Bargain under § 82-94 or special rules
  4. Except other rules which apply

UCC

  1. § 1-103:
  2. UCC literally construed to promote underlying principles
  3. simplify, clarify modernize, governing commercial transactions
  4. permit continued expansion of commercial practices through custom, usage and agreement of parties
  5. make uniform the law
  6. supplement with other principles
  7. § 1-201
  8. (3): “agreement” as distinguished from “contract” means the bargain of the parties in fact
  9. in language or inferred from other cirumstances including
  10. performance
  11. course of dealing
  12. usage of trade in section 1-303
  13. (12) “contract” total legal obligation that results from the parties agreement

Good: things that are movable that aren’t money or securities

Notes

  1. UCC: Sale of Goods
  2. CISG: Transactions between business international agreement over parties both accepting CISG
  3. Common Law: the rest and fill in above 2

II. Enforcing Promises: Bases of Legal Obligation

  1. Mutual Assent

1. Intention to be bound

Restatement

  1. §20 (and § 201): Effect of Misunderstanding
  2. mutual misunderstanding: no manifestation of mutual assent to an exchange if parties attach materially different meanings to their manifestations and
  3. both don’t know: neither party knows/has reason to know the meaning of other or
  4. both know: each party knows or each party has reason to know the meaning attached by the other
  5. unilateral misunderstanding: manifestations operative in accordance with the meaning attached by one parties if
  6. that party doesn’t know of any different meaning attached to the other and other knows the meaning attached by the first or
  7. same but reason to know for each party
  8. § 21: intention to be legally bound
  9. don’t need real or apparent intention that promise is legally binding
  10. BUT: manifestation that intention that promise is not legally binding may prevent contract formation
  11. Notes: different meanings
  12. Shut down contract:
  13. mutual no knowledge of others different meaning
  14. mutual know different meaning of other
  15. 1 party meaning
  16. as stated above, clear

CISG

  1. Article 8
  2. Statements/conduct of a party interpreted according to his intent where the other party knew/could not have been unaware of intent
  3. If above not applicable: statements/conduct interpreted according to understanding of reasonable person of same kind

Notes/Cases

  1. Lucy v. Zehmer
  2. Buyer claims was serious, seller claims was joking
  3. Here there is unilateral misunderstanding.
  4. The buyer took the contract to be serious: seller had reason to know this
  5. The seller was joking, but buyer didn’t know/have reason to know
  6. So Buyers interpretation taken
  7. Objective Standard: Actual mental agreement is irrelevant
  8. Objective Standard: what reasonable person would understand
  9. Common Law: modified objective approach
  10. Generally: objective
  11. Unless agree on subjective intent even if haven’t said it or written
  12. 4 principles
  13. rejects subjective approach
  14. parties words/conduct interpreted as reasonable person would
  15. subjective states of mind can still prevent formation
  16. restatement 20: neither party knew of different meaning or both parties knew (nobody/both at fault)
  17. subjective states of mind can impose 1 parties meaning on another
  18. not equally at fault: apply ignorant party’s meaning if other party knew/had reason to know ignorant party’s meaning
  19. subjective meaning can impose neutral understanding
  20. subjective meaning the same even if reasonable person would find different understanding
  21. Consequence: can have obligation you never knew (unilateral mistake but other party didn’t know/have reason to know) apply objective understanding
  22. Ray v. William G Eurice & Bros
  23. Take objective approach: duty to read contract
  24. Even if P didn’t think they were agreeing to certain terms, they have a duty to read the contract, signed it. Objective person would understand what was in it
  25. Contract: must have reasonable means of determining breach and remedy
  26. Will include quantity

2.Offer and Acceptance: Bilateral Contracts

Offer

Restatement

  1. § 22: Mode of Assent: Offer and acceptance
  2. manifestation of mutual assent usually offer by one and acceptance by other party
  3. offer/acceptance can be manifest even though neither can be IDed or moment of formation cannot be determined
  4. § 24: Offer: manifestation of willingness to enter into a bargain made to justify another in understanding that his assent to that bargain is invited and concludes it
  5. § 26: Preliminary negotiations: manifestation of willingness to enter bargain not an offer if receiver knows/has reason to know offerer does not intent to conclude bargain until he has made further manifestation of intent—this is basically an invitation to bargain more
  6. § 33: Certainty:
  7. intention of being offer cannot be accepted to form contract until terms reasonably certain
  8. certain=provide basis for determining
  9. the existence of a breach and
  10. giving remedy
  11. terms left open or uncertain may show intention is not to be understood as an offer or an acceptance
  12. § 40: time when rejection/counter offer terminates power of acceptance
  13. rejection/counter-offer by mail or telegram: doesn’t terminate power of acceptance until received
  14. but letter/telegram of acceptance sent after is only acceptance if received before the rejection: otherwise it’s counteroffer
  15. Clarified: (so no mailbox rule if first send out rejection)
  16. §42 Revocation from offeror received by offeree
  17. power of acceptance terminated when offeree receives manifestation of intent not to enter proposed offer
  18. § 63: when acceptance takes effect: unless offer says otherwise: Mailbox Rule
  19. acceptance in manner invited by offer is operative (is acceptance/mutual assent) as soon as it’s out of offeree’s possession regardless of if it reaches offeror BUT
  20. But: acceptance under option contract is not operative until received
  21. § 65: Reasonableness of medium of acceptance
  22. (unless circumstances known to offeree indicate otherwise) medium of acceptance is reasonable if one used by offeror or
  23. customary in similar transactiosn at time/place offer is received
  24. § 66: acceptance properly dispatched
  25. acceptance not operative when dispatched unless properly addressed and other precautions taken as are ordinarily observed to insure safe transmission of similar messages
  26. § 68 What constitutes receipt of revocation, rejection, or acceptance
  27. when comes into possession of the person addressed OR
  28. into possession of person authorized by him to receive it OR
  29. when deposited in some place which he has authorized as the place similar communications be deposited for him

CISG

  1. 16(1): offer may be revoked if the revocation reaches offeree before he dispatches an acceptance
  2. 18(2): acceptance effective when reaches the offeror
  3. not effective if does not reach offeror in time fixed or (when no time fixed) within reasonable time
  4. take into account circumstances of transaction, including means of communication by offeror
  5. oral offer must be accepted immediately unless circumstances indicate otherwise

Notes/Cases

  1. Lonergan v. Scolnick
  2. There was never an offer, so no power of acceptance, was only preliminary negotiations
  3. “This is form letter” usually means not an intention to be bound
  4. Offer: generally to a specific person, so ads not usually good.
  5. Acceptance: can just put in terms saying acceptance only good when received to protect oneself
  6. In person/over the phone communication: acceptance is good when received (so not good if dropped phone or something)
  7. Izadi v. Machado (gus) Ford
  8. Ad not usually an offer
  9. but court being hard on Machado because it was a bait and switch
  10. LeftiwitzCase: first come first serve ad: is an offer if first to come
  11. Offer: intention to be bound, reasonably certain terms (breach and remedy, probably quantity), at specific or specific group

Revocation and Acceptance

Restatement

  1. § 36: Methods of termination of Power of Acceptance
  2. rejection or counter offer or
  3. laps of time or
  4. revocation by the offeror or
  5. death/incapacity of the offeror or offeree
  6. nonoccurrence of any condition of acceptance under the offer
  7. § 38: rejection
  8. power of acceptance terminated by rejection unless otherwise manifested by contrary intention of offeror
  9. manifestation of intention not to accept an offer is rejection unless offeree manifests intention to take it under further advisement
  10. § 39: counter offers
  11. offer made by offeree relating to the same matter and propsing substituted bargain differing from original offer
  12. terminates power of acceptance unless offeror manifested a contrary intention or counter-offer manifests contrary intention
  13. § 43 indirect communication of revocation
  14. power of acceptance terminated when offeror takes definite action inconsistent with intention to enter proposed contract and offeree acquires reliable information to that effect
  15. § 50: acceptance of offer defined; acceptance by performance; acceptance by promise
  16. acceptance=manifestation of assent to terms made by offeree in manner invited or required by offer
  17. acceptance by performance requires at least one part of what offer requests performed or tendered and includes acceptance by performance which operates as a return promise
  18. acceptance by promise requires offeree complete every act essential to making of the promise
  19. § 58: necessity of acceptance complying with terms of offer
  20. an acceptance must comply with requirements of offer as to the promise made or performance rendered
  21. § 59 Purported acceptance which adds qualifications
  22. reply to offer which purports to accept it but is conditional on offeror’s consent to additional terms or different terms is a counter offer
  23. § 60: acceptance of offer which states place, time, or manner of acceptance
  24. if an offer states place, time, or manner of acceptance in terms then terms must be complied with in order to create a contract. If merely suggests these things, another method is not precluded
  25. § 69: acceptance by Silence or Exercise of Dominon
  26. whereofferee doesn’t reply, acceptance by silence or inaction is acceptance only when
  27. offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know they were offered with expectation of compensation (like guy building wall in your yard)
  28. whereofferor has stated or given offeree reason to understand that assent may be manifested by silence/inaction and offeree in remaining silent and inactive intends to accept offer (subjective)
  29. where because of previous dealings or otherwise, reasonable that offeree should notify offeror if he does not intend to accept (like continuing business stuff)
  30. offeree who acts inconsistent with offeror’s ownership of offered property is bound in accordance with offered terms unless they are unreasonable.
  31. BUT: if act is wrongful against the offeror (like inconsistent with terms), its an acceptance only if ratified by him

Notes/Cases

  1. Normile v, miller: Offeror took definite action against offer and offeree had reliable knowledge of it, so offer revoked
  2. Restatement 59 clarification: adding tentative condition later, don’t undermine acceptance. Like asking could we add something? Would you like fries with that? Bc not conditioning his acceptance on it
  3. Mirror image rule: acceptance must mirror offer: if changes it, then there is rejection and counteroffer
  4. Once rejected power of acceptance gone: but can frame answer to keep offer on the table

3.Offer and acceptance: unilateral Contracts

Restatement

  1. § 30: Form of acceptance invited
  2. an offer may invite/require acceptance by made by affirmative answer in words or by performing/refraining from specified act
  3. OR: may empower the offeree to make selection of terms in his acceptance
  4. Unless otherwise indicated by language/circumstances: an offer invites acceptance in any manner/medium reasonable in circumstances
  5. § 32: Invitation of Promise or Performance
  6. in case of doubt an offer is interpreted as inviting acceptance by either promising to perform or by rendering performance, as offeree chooses
  7. § 45: option contract created by part performance or tender (no promise invited)
  8. where offer invites acceptance by performance and not promise, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it
  9. theofferor’s duty of performance under any option contract is conditional on completion or tender of the invited performance in accordance with terms of offer
  10. § 62: effect of performance by offeree where offer invites either performance or promise (the choice)
  11. the tender or beginning of the invited performance or a tender of the beginning of it is an acceptance by performance
  12. such acceptance operates as a promise to render complete performance: NOTES: this creates option, it’s held open
  13. but liable then if don’t complete
  14. creates bilateral

notes/cases

  1. Patterson v. Pattberg: lender said knock off money if pay in full by date, then revoked on the date before lendee tendered the payment, so properly withdrew
  2. But, only thing preventing performance was rejection of offer
  3. This is still good, didn’t have performance
  4. Didn’t have full performance, just offer to make the payment
  5. Money wasn’t tendered—because wasn’t shown before revocation
  6. This is under old Brooklyn bridge law, maybe different under new rule because began act, or tendered beginning of it
  7. But even under modern doctrine, probably just mere preparation, not beginning performance
  8. § 62: performance under ambigious contract (invites promise or performance as acceptance): the beginning of performance is an acceptane of performance
  9. operates as a promise—creates an option (held open)
  10. but then cant stop once begin performance
  11. liable for contract damages if don’t complete
  12. Cook v. Coldwell: employer offered bonus for certain amount of sales but then later added condition that still had to be employed there
  13. Unilateral bc employer not asking for promise to make sales
  14. Before revoked, there was performance: reached the threshold of bonus (§ 45)
  15. Had substantially started performance: reached the highest threshold, so ability to revoke gone
  1. Postponed Bargaining: “the agreement to agree”

Restatement

  1. § 27 Existance of contract where written memorial is contemplated
  2. manifestations of assent sufficient to form contract are not prevented from doing so by fact that parties also manifest an intention to prepare and adopt a written memorial thereof,
  3. BUT: circumstances may show that agreements are preliminary negotiations

UCC

  1. § 2-305:
  2. parties (if so intend) can conclude contract for sale even though price is not settled. Price is a reasonable price at the time for delivery if
  3. nothing is said of price or
  4. price is left to be agreed by the parties and they fail to agree or
  5. the price is to be fixed in terms of some agreed market or other standard as set or recorded by third person or agency and it is not set or recorded
  6. BASICALLY: COURT WOULD FIX PRICE
  7. price to be fixed by seller or buyer must be fixed in good faith
  8. when price left to be fixed not by agreement of the parties fails to be fixed through fault of one party,
  9. the other may at his option treat the contract as canceled or
  10. fix a reasonable price
  11. where the parties intend not to be bound unless price be fixed or agreed and it is not agreed there is no contract
  12. the buyer must return goods already received or
  13. if unable, must pay reasonable value at time of delivery and
  14. seller must return any portion of the price paid on account
  15. § 2-204 (3)
  16. even if term(s) are left open, contract for sale doesn’t fail if parties intended to make a contract and there is reasonable certain basis for giving appropriate remedy

Notes/Cases

  1. Walker v. Keith: court refused to enforce extension of lease because provision for setting rent was indefinite and ambiguous
  2. Rule: must set amount or clear method to determine: here just said market value—but not specific enough
  3. Probably a lazy court: they would fix price
  4. Test taking: say like Walker or differentiate: there was way to determine price, but not very definite: court doesn’t want to be arbitrator
  5. Longer term relationships: courts more likely to enforece
  6. Quake Construction v. American Airlines:
  7. P informed got bid over the phone,
  8. Letter of intent set, but said right to cancel if parties failed to agree
  9. Agreement to negotiate
  10. But also hint of seriousness
  11. Letter said formal contract will come: evidence it’s not contract now
  12. After a couple meetings, D told P they weren’t contractor
  13. Holding: letter ambiguous, so parol evidence allowed
  14. Right to cancel still meant had to negotiate in good faith
  15. To apply: intended to have binding agreement even though not all filled out
  16. Rule: if writing ambiguous, look at intent of parties, if unambiguous, just look at writing
  1. Consideration

1.Defining Consideration

Restatement

  1. § 71: Requirement of exchange, types of exchange
  2. to constitute consideration, a performance or a return promise must be bargained for
  3. a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by promisee in exchange for that promise
  4. The performance may consist of
  5. An act other than a promise
  6. A forbearance
  7. The creation, modification, or destruction of a legal relation
  8. 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
  9. § 79: Adequacy of consideration; mutuality of obligation
  10. if the requirement of consideration is met, there is no additional requirement of
  11. gain/advantage/benefit to promisor or loss/disadvantage/detriment to promisee or
  12. equivalence in the values or
  13. “mutuality of obligation”

notes/cases

  1. Hamer v. Sidway
  2. Nephew didn’t drink for amount of time in exchange for money from uncle, uncle held on to it, now dead
  3. Court upheld contract: benefit/detriment test: detriment to nephew for giving up legal right
  4. Benefit/detriment test (traditional approach): consideration is benefit to promisor or detriment to promisee
  5. Usually more concerned about detriment, bc too easy to make up benefit
  6. Keep in mind who’s promise you are trying to enforce, who is promisor in the case and who is promisee of enforcement
  7. PA supply Inc v. American Ash Recycling Corp of PA:
  8. PA disposed of American Ash’s hazardous material but it wasn’t good
  9. PA needed to remove it, sue bc by giving it there was implied promise that the material wasn’t defective
  10. Consideration: benefit to American Ash: take it off their hands
  11. Detriment: taking title of hazardous material
  12. Bargain required: structure of bargain there, don’t need bargaining process
  13. Implied warranties were breached
  14. Gifts that benefit the giver (promisor) are treated as consideration rather than gift
  15. Bargained for exchange: (modern approach): sought for and given
  16. Can still use benefit/detriment as kind of test: to prevent from being too abstract

2.Applying the Consideration Doctrine