1L Contracts Outline FINAL PDF

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Comprehensive outline for Contracts I...

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SOURCES OF LAW: ●

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Common law ○ “Judge-made” ○ Based on decisions of courts ○ State law Restatement of Contracts ○ Secondary authority ○ “Guidelines” Uniform Commercial Code (UCC) -- Applies to everyone who enters into a contract for the sale of goods. ○ Always determine whether the transaction is sale of goods or not FIRST ■ If not, apply common law + look to Restatements ○ Governs sale of goods; goods = any moveable item. UCC § 2-105 ■ Goods are defined as “moveable things, including manufactured goods, livestock, crops.” ● Example: Purchasing clothes at a department store. ■ Goods are NOT… ● Money/intangible rights ● Sale transactions involving real property (house); service provisions (dry cleaner); purchase of shares in a corporation or coverage under a life insurance policy. ■ If a hybrid transaction occurs, “predominant factor” or “predominant purpose” test will apply. UCC § 2-106 ■ A sale consists of the passage of title from the seller to the buyer for a price. UCC § 2-104 ○ MUST THE PARTIES BE MERCHANTS? ■ No, however, there are some provisions that have special rules that apply to “merchants” ● Merchant = an experienced professional buyer or seller, rather than a casual or occasional buyer or seller. Convention on Sale of International Goods. ○ Not important for this course.

WHAT IS A CONTRACT? ●

Promise or set of promise, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty. ● The goal is an efficient outcome -- want the exchange to be beneficial to both parties. TYPES OF CONTRACTS (so far) ● Express v. Implied Contract ○ Express - Formed by language, oral or written. Able to find a deal was created solely by the words of the parties. ○ Implied - Formed by manifestations of assent other than oral or written language (i.e. conduct). Looks to see whether parties are acting as if there is a deal. ● Quasi Contract ○ Equitable remedy → Concerned with doing what’s fair and what’s right. ■ Constructed by courts to avoid unjust enrichment  by permitting P to bring an action in restitution to recover the amount of the benefit conferred on D. ○ Rules of contract law have no application to quasi-contracts. ○ Exam strategy: If result is unfair, include a paragraph on quasi-contract and available quasi-contract relief after applying contract law principles. ● Bilateral v. Unilateral Contracts ○ Bilateral contract → Exchange of mutual promises. ■ Most contracts are bilateral.

Agreement between two parties in which the offeror makes a promise and the offeree accepts by making a promise. ■ Both parties have outstanding promises to be performed in the future. ● Example: “I offer to sell you Blackacre for $2 million.” ○ Unilateral contract → Acceptance by performance. ■ Agreement between two parties, in which the offeror makes a promise and the offeree accepts by rending a performance. ■ The act of acceptance is also the complete act of performance. ● Example: “I offer to sell you ‘Bleakacre’ for $2 million. To accept this offer, you must come to my office today at 2 p.m. and pay me $2 million in cash. ■ Offeror/promisor promises to pay upon completion of the requested act by the promisee. Once act is completed, contract is said to be formed. ○ Note: Bilateral-unilateral distinction is nothing more than a particular application of the general principles governing the proper mode of acceptance. R(2d) § 1: Contract Defined ➢ A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty. R(2d) § 2: Promise ➢ (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. ➢ (2) The person manifesting the intention is the promisor. ➢ (3) The person to whom the manifestation is addressed is the promisee. ➢ (4) Where performance will benefit a person other than the promisee, that person is the beneficiary. R(2d) § 3: Agreement; Bargain ➢ An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. R(2d) § 4: How a Promise May be Made ➢ A promise may be stated in words either oral or written, or may be in-ferred whole or partly from conduct. 7 “Major” Questions 1. Is there a deal? Was a deal or agreement made? 2. If there is a deal, how do the courts enforce deals? 3. Assuming there is a deal, is there any reason for the court not to enforce that deal? 4. What is the deal exactly? What was agreed to? 5. Once we know what the deal is, did anyone not do what he agreed to do? 6. If someone didn’t do what he agreed to do, did he have an excuse? 7. Does anyone other than the two people who made the deal have legal rights b/c of the deal? ■

Bailey v. West -- Implied-in-fact/Lame horse

“THE BASICS” ● ● ●

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A contract is created because the parties, acting with free will and intent to be legally bound, reach agreement on the essential terms of their voluntary, consensual relationship. There must be a promise made by at least one of the parties for the contract to exist. ○ A promise is an undertaking to act or refrain from acting in a specified way at some future time. Certainty is required to terms of the contract → Q-TPPPS ○ (1) Quantity; (2) Time for performance; (3) Parties to the contract; (4) Price; (5) Place for performance; (6) Subject matter (Offer + acceptance = mutual assent) + consideration = contract ○ A binding contract is created through the process of offer and acceptance when consideration is present and when no valid defenses to contract exist. ○ Once the promisor makes a promise in exchange for the promisee’s promise or performance AND communicates his or her intentions to the promise, the offer is created. -- SEE CONSIDERATION

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Example: When Henrietta returned John’s lost dog, John promised to pay Henrietta $50 for her efforts. Since Henrietta had already returned Toby to John when he made the promise to pay her, John’s promise was not intended to induce her to act. Thus, there was no consideration for John’s promise and it was only a gift promise. If John refuses to pay Henrietta, she has no contract upon which to sue him.

Arbitration → ○ Private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments. ○ Neutral arbitrator has the authority to make a decision about the dispute (different from mediation) ○ Quicker and less formal than a traditional trial.

“FIVE POINTS” ● ● ● ● ●

Not all promises form contracts. No contract unless the parties are “intended” to have one. Contracts do not have to be written or spoken; may also be implied from the parties’ conduct. If justice demands it, quasi contract may provide a remedy even in the absence of a promise. Courts will usually (but not always) enforce a bargain even if the circumstances have changed. ○ Courts will deviate when there is a defense (lying, mistake, bargaining power is extremely unfair, duress, etc.)

PERSPECTIVES ON CONTRACT LAW ● ●

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“Privately-made law” Formalism (Langdell) ○ Law is created and can be implied impartially. ○ Law can be deducted from basic principles. ○ Predictable, objective, and apolitical; slow moving ***Realism (Llewellyn) ○ Law is in flux. ○ Impossible for the law to be apolitical. ○ Law is a means to a social end. ○ To understand it, we must look behind the formal rules to the heuristics of the people using them. ○ Law should be evaluated in terms of its effect on society. Relational Contract Theory ○ Contract must be viewed in context of a relationship between parties. ○ Prior deaing of parties, societal norms will influence the parties’ performances. ○ Remember pg. 19; 3-4 Critical Approaches (Powell) ○ Viewing the law skeptically, critical theory asks whether the identities of marginalized groups play a hidden role in legal analysis and outcomes. ○ Recognizes that facially neutral laws can have outsizes effects on particular populations. Law and Economics ○ Focuses on the incentives legal rules create and their likely effects on human behavior. People are maximizers. ■ When deciding how to act people → (1) Rationally weigh all costs and benefits of their various options; (2) Each is indifferent as to the costs or benefits that her actions might impose or confer on others. ● Normative premise: the goal of law should be to maximize social welfare, or overall preference satisfaction. ○ Three function of contract law: ■ Furnishes incentives for value -- maximizing conduct in the future. ■ Reduces the complexity and cost of a law of contracts; the parties would have to negotiate expressly.

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It furnishes “prospective transacting parties with information concerning the many contingencies that may defeat an exchange and assists them in planning their exchange sensibly.”

THREE KINDS OF ENFORCEABLE PROMISES ● ● ●

Promise + consideration = contract Promise + recognition of antecedent benefit = moral obligation. ○ Rarely enforceable Promise +unbargained for reliance = promissory estoppel

Has a Deal Been Made (Formation)? Issues to consider in formation questions: 1. Was there ever a deal proposed? Did we even have an offer? 2. Was the offer revoked, rejected or terminated? 3. Was the deal for the offer accepted?

**MUTUAL ASSENT**

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R(2d) § 17: Requirement of a Bargain ➢ (1) Except as stated in subsection 2, the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. ➢ (2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94. R(2d) § 18: Manifestation of Mutual Assent ➢ Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. R(2d) § 19: Conduct as Manifestation of Assent ➢ (1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. ➢ (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. ➢ (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause. R(2d) § 21: Intention to be Legally Bound ➢ Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. R(2d) § 22: Mode of Assent: Offer and Acceptance ➢ (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. ➢ (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. R(2d) § 23: Necessity that Manifestations Have Reference to Each Other ➢ It is essential to a bargain that each party manifest assent with reference to the manifestation of the other. GENERAL RULE: There is no contract unless the parties have a “meeting of the minds”; they intend to be bound. Where the court seeks to know the intent of the parties, it does not focus on what each party may have thought or believed he was agreeing to (subjective intent) but on the reasonable perception of that intent as conveyed by his words or actions (objective intent).

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(1) Objective theory ■ Assent is legally sufficient if each party, by the use of deliberate words or conduct, manifested agreement to be contractually bound. ■ Look for objective evidence (observable significations of intent) ● Example: Language, obvious behavior, custom or usage in the marketplace ■ Evidence of party’s state of mind could be helpful in interpreting or giving context to words/conduct. ○ (2) Reasonable person standard; words and acts are interpreted from the perspective of a reasonable person. ■ If one party knows or has reason to know, that the other is not serious, mutual assent is NOT achieved. ■ Ask not what the words or actions did mean to either party, but how they should have been understood if interpreted reasonably in the context of the transaction. JOXES AND HOAXES ○ Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer. ○ Was the communication reasonably understood as a serious commitment? ■ If the surrounding circumstances make it reasonable to conclude that they are in earnest, the fact that they were “in jest” does not matter; the contract will still be enforceable. ● See Lucy v. Zehmer MUTUAL MISUNDERSTANDING ○ Parties agree to the use of the same term in their contract, but each attaches a materially different meaning to that term. ■ Example: “Fifty-six twenty.” One party understood it to mean $56.20 and the other party though $5,620.00 ■ Parol evidence is admissible to determine whether there is a misunderstanding. ■ Contract becomes void because no “meetings of the minds.” R(2d) § 20: Effect of Misunderstanding ➢ (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and ■ (a) Neither party knows or has reason to know the meaning attached by the other, or ■ (b) Each party knows or should have reason to know the meaning attached by the other. ➢ (2) The manifestation of the parties are operative in accordance with the meaning attached to them by one of the parties if ■ (a) That party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or ■ (b) That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. Embry v. Hargadine, McKittrick Dry Goods Co. Lucy v. Zehmer -- Jokes and hoaxes Leonard v. PepsiCo -- “Pepsi points” + Harrier Jet Raffles v. Wichelhaus (The Peerless Case) -- Mutual Misunderstanding/2 ships named Peerless Wrench v. Taco Bell -- Implied-in-fact/”Psycho Chihuahua”

**OFFER** -- “Penultimate Step”

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R(2d) § 24: Offer Defined ➢ Manifestation of willingness to enter into a bargain so made as to justify another person in understanding his assent to that bargain is invited and will conclude it. ○ A promise by one party, made to another party, to do or not do something in the future, contingent upon the other party’s acceptance. Immediate and legal effect → An offer enables the offeree to accept and thereby places the parties in a contractual relationship.

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Creates “power of acceptance” in the offeree. R(2d) § 35: Power of Acceptance ➢ (1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. ➢ (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36. An offer must (either directly or indirectly): ○ Be communicated. ○ Indicate a desire to enter into a contract. ○ Be direct at some person or personas. ○ Invite acceptance ○ Create a reasonable understanding that upon acceptance a contract will arise. LOOK FOR DEFINITE TERMS ○ Offer must have definite terms and be directed at a specific person. ○ Is the communication complete? ■ Missing terms ● Employment contract -- Must specify the duration of the employment or else the contract is construed as employment at will. ■ Missing price ● Real estate ○ Common law -- Price and description of real estate are essential. ○ UCC -- Communication can be an offer even though there is a missing price term. ■ Ambiguous terms ● Words such as “fair”, “reasonable”, “appropriate” are considered ambiguous. ○ Anytime price or quantity is described in ambiguous terms, court will conclude no manifestation of commitment. ● Exception = Requirements Contract ○ Situation involving sale of goods in which quantity is described in terms of buyer’s needs. PRELIMINARY NEGOTIATIONS R(2d) § 26: Preliminary Negotiations ➢ A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making git does not intend to conclude a bargain until he has made a further manifestation of assent. ○ PRICE QUOTES ■ “Invitation to offer” ● Merchants need some freedom to deliver information about their goods to the market w/o committing to anyone and everyone who says, “I accept!” ■ Instead of giving the promisee(s) the power of acceptance, the promisor is reserving the right of final assent before the deal arises. ○ PUBLIC ADVERTISEMENTS ■ (Almost never an offer.) ● Example: Reward for lost dog. ■ To be an offer… ● (1) Promises a particular performance; (2) needs to be clear, definite, and explicit; (3) the circumstances indicate that the alleged offeror intended to enter into a binding relationship without further negotiation; (4) specifies manner of acceptance. ○ CONTRACT BIDDING ■ See Detrimental Reliance.

Lonergan v. Scolnick -- Invitation to offer

TERMINATION OF AN OFFER (Duration of the Offeree’s “Power of Acceptance”)

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R(2d) § 36(1): Methods of Termination of the Power of Acceptance ➢ (1) An offeree’s power of acceptance may be terminated by ■ (a) Rejection or counteroffer by the offeree, or ■ (b) Lapse of time, or ■ (c) Revocation by the offeror, or ■ (d) Death or incapacity of the offeror or offeree. (1) Rejection ○ Offeree declines the offer. ○ Rejection is effective when received by the offeror. ○ Rejection is absolute. ■ Once the offer is terminated by rejection, it cannot be revived unless the offeror chooses to revive it (revival of offer). R(2d) § 38: Rejection ➢ (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. ➢ (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to to take it under further advisement. (2) Counteroffer ○ A counteroffer acts as a rejection; terminates the original offer and “reverses” the process. ■ Original offeror becomes the offeree w/ power of acceptance. R(2d) § 39: Counteroffer ➢ (1) A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. ➢ (2) An offeree’s power of acceptance is terminated by his making of a counter offer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree. (3) Revocation ○ An offeror retains completely mastery and control over her offer until acceptance. ■ The offeror is the “master” of the offer. ○ The offeror may modify the terms of the offer at any time; he can also withdraw, or revoke the offer at any time. ○ Offeree must be aware of revocation. ■ Offeror must communicate his or her intent to revoke to the offeree BEFORE ACCEPTANCE. ■ Revocation is effective when it is received. R(2d) § 42: Revocation by Communication from Offeror Received by Offeree ➢ An offeree’s power of acceptance is terminated when the offeree received from the offeror a manifestation of an intention not to enter into the proposed contract. ○ An “indirect revocation” occurs when the offeree learns from...