CONTRACTS OUTLINE – LINZER FALL 2008

  1. INTRODUCTION
  2. What is a Contract?
  3. A contract is formed in any transaction in which one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be express or implied from conduct or language and conduct. A promise is legally enforceable where it:
  4. was made as part of a bargain for valid consideration;
  5. reasonably induced the promisee to rely on the promise to his detriment; or
  6. is deemed enforceable by a statute despite the lack of consideration.
  7. Types of Contracts
  8. Contract may be of the following types:
  9. Express – an agreement manifested by words
  10. Bilateral – both sides make promises (exchange of promises)
  11. Unilateral – one which involves an exchange of the offeror’s promise for the offeree’s act. That is, in a unilateral contract the offeree does not make a promise, but instead simply acts.
  12. Implied
  13. Implied-in-fact – an agreement manifested by conduct
  14. Implied-in-law ("quasi-contract") – not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice
  15. Sources of Contract Law
  16. Common Law – in most jurisdictions, contract law is not codified, and thus the primary source of general contract law is caselaw.
  17. Restatement – written by the American Law Institute to provide guidance to the bench and bar, the Restatement of Contracts (currently in the second edition) has no legal force but nevertheless provides highly persuasive authority.
  18. Uniform Commercial Code(UCC) – created under the auspices of the American Law Institute and the National Conference of Commissioners on Uniform State Laws, has been adopted by every state except Louisiana. Proposed revisions to Article 2, governing contracts for the sale of goods, have been finalized and presented to the states for enactment.
  19. United Nations Convention on Contracts for the International Sale of Goods (CISG) – ratified by many of the leading trading nations including the United States and China (but not the United Kingdom and Japan), it governs many transactions for the sale of goods between parties with places of business in different nations.
  20. UNIDROIT Principles of International Commercial Contracts – non-binding authoritative text similar to the Restatement.
  21. Uniform Computer Transactions Act (UCITA) – addresses issues arising out of computer licensing but has only been enacted in Virginia and Maryland.
  22. Uniform Electronic Transactions Act (UETA) – adopted by most states, this act does not affect basic contract doctrine but governs the use of electronic communications. It applies to "transactions," defined as "the conduct of business, commercial or governmental affairs." Thus, it does not govern contracts such as those between family members or with non-profit institutions.
  23. Electronic Signatures in Global and National Commerce Act (E-Sign) – this federal law allows states to preempt it by enacting the UETA.
  24. Contracts for the Sale of Goods
  25. [1] Application of UCC
  26. Article 2 of the Uniform Commercial Code covers all transactions for the sale of goods other than securities (article 9) and leases (article 2A). It applies to any party; it is not limited to merchants although individual provisions may be.
  27. [2] "Goods" Defined
  28. Under the UCC, a "good" is any tangible thing that is moveable. [UCC § 2-105(1)] In addition to manufactured products, "goods" include:
  29. growing crops or timber, unborn young of animals and other identified things attached to land (other than minerals or the like or structures), regardless of who severs them from the land provided that they can be removed without causing material harm to the land
  30. currency exchanged as a commodity (as opposed to the medium of payment for a good)
  31. minerals or the like or a structure or its materials to be removed from realty that are to be severed by the seller
  32. The term "goods" does not encompass:
  33. intangible rights such as intellectual property
  34. investment securities
  35. money which is the medium of payment for goods
  36. minerals or the like or a structure or its materials to be removed from realty that are to be severed by the buyer
  37. [3] "Sale" Defined
  38. UCC § 2-106(1) defines "sale" as the transfer of title for a price. Contracts that involve both goods and services must be evaluated to see which constitutes the primary purpose of the contract, with the secondary purpose being treated as incidental. If the primary function of the contract is to provide a service, the UCC does not apply, even if an incidental sale of goods occurs.
  39. [4] "Merchant" Defined
  40. A "merchant" is one "who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction" or who employs an agent or broker in such occupation. [UCC § 2-104(1)]
  41. [5] "Good Faith" Defined
  42. Every contract for the sale of goods imposes an obligation of good faith dealing on all parties in its performance and enforcement. [UCC § 1-203] All parties, including non-merchants, are subject to UCC § 1-201(19) which defines "good faith" as "honesty in fact in the conduct or transaction concerned." Merchants are subject to an additional good faith standard, set forth in UCC § 2-103(1)(b), which requires "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."
  43. [6] "Record" Defined
  44. The proposed revision of Article 2 reflects the contemporary use of electronic communications by substituting all prior references to "writing" with "record," defined in proposed UCC § 1-201(33a) as "either a writing or a retrievable information in a computer's memory, a computer disk, or the like."
  45. Types of Law
  46. Classical Contract Law (Legal Formalism): Samuel Williston (Arthur Corbin held different views)
  47. Preference for clear rules over general standards
  48. Expressed an indifference to issues of morality and social policy.
  49. Williston was in charge of the R(1)K, with Corbin as his 2nd in command.
  50. So the R(1)K is almost schizophrenic in nature, b/c Corbin and Williston had differing ideas.
  51. Modern Contract Law (Legal Realists): Arthur Corbin and Karl Llewellyn (wrote the UCC)
  52. Legal Realist: Believes that the law is not “out there”, but that the judge makes the law.
  53. Corbin wrote the R2K.
  54. Rules are always working…never Permanent!
  55. Conceptual; considers real life issues.
  56. Llewellyn: “Covert tools are always bad tools!!” b/c the next lawyer will use them differently.

ENFORCING PROMISES

  1. R(2)K: A contract is a legally enforceable “promise or…set of promises.”
  2. Lon Fuller’s 3 Substantive Bases of Contractual Liability:
  3. Private Autonomy – people willingly contract to do something, the court should honor this b/c it has something to do with the autonomy of people. (ex. Gift (Gratuitous) Promises are Not Contracts – autonomy should be protected b/c they didn’t really intend or mean to promise it.)
  4. Reliance – People make plans in preparation of a contract; therefore, you should not be able to get out of contracts b/c someone else has relied upon you.
  5. Unjust Enrichment – One side gets away w/ something by breaching a contract and the other side was not enriched, or even suffered a detriment. This is not fair. (If I give a watch to a jewelry shop to fix it and they haven’t returned it or fixed it, they have been unjustly enriched)
  6. Enforcement of a Promise Requires:
  7. Consideration – something given in exchange for the promise
  8. Promissory Estoppel – reliance on the promise
  9. Restitution– unjust enrichment.
  1. MUTUAL ASSENT - For a contract to be formed, the parties must reach “mutual assent.” That is they must both intent to contract, and they must agree on at least the main terms of the deal.
  2. INTENTION TO BE BOUND/Intent to Contract (OBJ. THEORY)
  3. Objective theory –in determining whether the parties have reached mutual assent, what matters is not what each party subjectively intended. Instead, a party’s intentions are measured by what a reasonable person in the position of the other party would have thought the first party intended, based on the first party’s actions and statements.
  4. Question 1: Is there Contract Formation Here?
  5. Ray v. William G. Eurice & Bros., Inc. – (I didn’t read it…but, I signed it)
  6. (Revised plans were attached to a contract which was read and signed by Eurice. Eurice also signed each spec individually at the bank. Subsequently, Eurice refused to perform, and Ray sued for breach. D contended he never saw the specifications referred to by the contract and believed the contract referred to his own specifications. Refuse to honor “promise”.)
  7. “Duty to Read”
  8. “Meeting of the Minds” – was the law in the 18th Century, but in the 19th century it’s not about the mind.
  9. TOOL: Mutual Manifestation of Assent
  10. R2K §21: A party does not have to intend for a promise to be binding for it to be enforceable.
  11. R2K §19(3): The conduct of the party may manifest his assent, even though he does not assent. In these cases, the contract may be voidable b/c of fraud, duress, mistake, or other invalidating cause.
  12. The signed piece of paper is “objective manifestation of assent” according the court.
  13. Rule: If a party signs a K that a reasonable person would’ve understood to mean one thing and the party did not intend to agree to that thing, the contract is still enforceable. If there is a “mutual manifestation of assent”, unless both of the parties enter into the contract by mistake, fraud, or duress, the contract is valid and both parties are bound. The intent of the parties to be bound is irrelevant.
  14. Park 100 Investors, Inc. v. Kartes – (Signing in Hurry – Fraud)
  15. (The Kartes (D) negotiated with Park 100 (P) to lease space for their business. A lease agreement was signed which did not include any provisions for a personal guaranty of the lease and a personal guaranty was never mentioned. A representative of Park 100 caught the Kartes as they were late to their daughter’s wedding and fraudulently obtained their signatures on a personal guaranty.)
  16. Two types of Fraud:
  17. Fraud in the Execution (Fraud in the Factor): Have a blind man sign a blank check.
  18. Fraud in the Inducement: By Park 100’s silence, they let the Kartes’ believe that it was the original lease agreement agreed upon.
  19. Fraud is an exception to the basic “Duty to Read” and “Manifestation of Assent” rules.
  20. In order to use Fraud as an escape:
  21. The charged party must have known of the fraud (he was silent for a reason)
  22. The fraud must have been relied upon by the complaining party (they signed)
  23. The fraud must have cause injury ($)
  24. Rule: A contract entered into by fraudulent means is not valid.
  25. Linzer: These two cases are CONSISTENT! They follow the same rule, but the Park 100 case is an exception to the rule b/c fraud was involved.
  26. OFFER & ACCEPTANCE
  27. Offer - An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. An offer creates in the offeree the power to form a contract by an appropriate acceptance. [Restatement § 24]
  28. Acceptance – an acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer
  29. Hohfeldian Analysis:
  30. Right:Something the govt. will enforce.
  31. Duty:The “correlative” of Right. (If I have a right against you, you have a duty to me. You have a duty not to violate my right.)
  32. No-Right:Opposite of Right
  33. Privilege:Absence of Duty
  1. Right ------ Duty

↕ ↕

No-right------Privilege

  1. Power:The Ability to change legal relations with another person. (“power of attorney”)
  2. Liability: The person is subject to the one with the power (“My power is your liability”)
  3. Disability:Opposite of Power
  4. Immunity:If they can’t change legal relations then you are immune.
  1. Power ------ Liability

↕ ↕

Disability ------Immunity

  1. If I say: “I’ll give you $100, if you walk the bridge”
  2. You are giving me the “Power” to ACCEPT.
  1. BILATERAL – both sides make promises
  2. Lonergan v. Scolnick – (The “Snail Mail is Too Slow” Case)
  3. (After Lonergan (P) had made several inquiries concerning some advertised land; Lonergan sent a letter stating he wanted the property, but it had been sold to another several days before. He alleged a valid contract had been formed while Scolnick said they had merely negotiated in the letters sent back and forth.)
  4. An Ad is usually an “invitation for an offer”
  5. This case shows us what an offer IS NOT!
  6. Their minds didn’t meet.
  7. Mailbox Rule: You put it in the mailbox, the deal is done. i.e the offer/acceptance is binding on you.
  8. This applies to email.
  9. Rule: If from a promise, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making the offer (offeror)does not intend it as an expression of his fixed purpose until he has given further expression of assent, he has not made an offer.
  10. Izadi v. Machado (Gus) Ford – (The exception to the “AD is not an offer” Rule)
  11. (Izadi (P), attempted to purchase a 1988 Ford Ranger Pick-Up by giving the dealership $3,595 in cash, and a trade-in. The dealership refused to recognize Izadi’s interpretation of their ad, which specified in small print that the minimum $3,000 trade in value (no matter how much the trade-in was actually worth) only applied to the purchase of “any New ’88 Eddie Bauer Aerostar or Turbo T-Bird in stock”, and that the other trade-ins mentioned in the ad would have to be worth $3,000.)
  12. Machado intentionally intended for the customer to be fooled.
  13. The more specific you are, the more likely it will be considered an offer.
  14. Williston: The test of true interpretation…is what a reasonable person in the potion of the parties though it to mean.”\
  15. Corbin: Ad is an invitation to make offers (R2K §26)
  16. Rule: A deliberately misleading advertisement that intentionally leads the reader to the conclusion that a binding offer exists can be considered an “offer”.
  17. If an ad contains specific words of commitment, especially a promise to sell a particular number of units, then it may be an offer.
  18. Generally ads are not offers to sell.
  19. UNILATERAL – one side promises while the other acts (on the promise)
  20. Definition: Offeror offers to give offeree something if the offeree performs – the ball is in the offeree’s court, the offeror is not bound unless the offeree performs.
  21. Brooklyn Bridge Hypothetical:
  22. Mutuality of Obligation: “Offeror was not bound, until the offeree completed the act.”
  23. Wormser says since the promisee is not bound to complete, then “both must be bound or neither should be bound”.
  24. Unilateral K is formed WHEN he walks across the bridge, so anytime before that offeror can revoke.
  25. There can be Consideration without Mutuality and without Obligation, therefore not a valid contract.
  26. UNILATERAL: “I’ll pay you $100 if you find my dog”
  27. BILATERAL: “I’ll pay you $100 if you promise to find my dog”
  28. Now if he promises and doesn’t find your dog, then he has breached the contract.
  29. Wormser also says the burden should be on the offeror, not the offeree.
  30. Requirements Contract: If you give me a good price, I’ll buy all I need from you.
  31. Buyer may stop using the product, therefore no longer needing it and not being obligated to buy any more.
  32. Option Contract: I will buy everything you can make.
  33. No “mutuality of obligation” – Seller did not have an obligation as long as they didn’t sell to anyone else, they could close the factory.
  34. Patterson v. Pattberg – (Dang it, I should’ve slid the money under the door!)
  35. (Pattberg (D) offered to discount the mortgage on Petterson’s estate on the condition that it be paid on a certain date. Petterson had showed up at Pattberg’s door, announcing he was going to pay him, only to be told the mortgage had already been sold to another. Petterson sues for breach of contract.)
  36. Classical Court: There was no “tender” (handing over of the money) before the offer was revoked.
  37. Williston: The offeror may see the approach of the offeree as contemplated…
  38. Hard (harsh) cases can’t make bad cases.
  39. Rule: If the defendant withdraws his offer before the act of the promisee was completed (which would’ve made the promise binding), no contract was ever mad and revocation is allowed.
  40. *****ON a test argue the classical Patterson view (you can revoke at any time before he tenders money) and modern R2K §45 part Performance View …if oferree starts performance, the oferror can’t revoke the offer, but his duty to pay does is contingent on him actually completing performance.
  41. Cook v. Coldwell Banker – (I think you owe me a bonus!)
  42. (P, Cook, said she had accepted Coldwell’s, D, offer of a bonus by substantial performance. The bonuses were to be paid at the end of the year, but Coldwell changed the conditions a few months later and moved the pay time to March of the following year. Cook stayed with Coldwell until the end of the year in reliance of the original offer, but she was not paid.)
  43. Courts are now using unilateral contract analysis to enforce liability, rather than to avoid liability.
  44. R2K §45 – Option Contract: “If you start walking, I promise not to withdraw the offer.”
  45. 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 the beginning of it.
  46. 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. (This rule protects the offeree in justifiable reliance on the offeror’s promise.)
  47. Cook had created an underlying option contract under 45. She should get her whole promise, even if she does not stay until March. You cannot change or modify a contract in this way. Coldwell cannot change the terms as she “was walking across the Brooklyn Bridge.”
  48. Rule: In the context of an offer for a unilateral contract, the offer may not be revoked when the offeree has accepted the offer by substantial performance.
  49. Llewelyn: The only true unilateral K is one in which the oferror would not want a return promise – real estate brokers, offer of rewards, b/c there is not 100% assurance that they will make good on that promise.
  50. When is the Offer Effective?
  51. Receipt of offer - An offer is not valid until received by the offeree or his agent. [Restatement § 68]
  52. Duration of offer
  53. If the offer has a stated time within which the acceptance must be made, any attempted acceptance after the expiration of that time will fail and will merely constitute a counter-offer by the offeree.