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Contracts Outline

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Ivanna Boychuk

on 20 February 2015

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Transcript of Contracts Outline

Statute of Frauds
Contracts Outline
Requires that K be in writing to be enforceable
Source of Governing Law
Common Law
Uniform Commercial Code
Money (loans)
intellecutal property
goods (movable @ time of K)
Secondary Authority
or set of promises
manifestation of intention to act/refrain
-offeree must believe promise

explicit/formal expression of voluntary agreement
conduct of parties in the context
not true Ks.
Exist when liability necessary in restitution to prevent
unjust enrichment
even though language & conduct of parties do not manifest voluntary agreement
Specific Performance
party in position
had K been performed
party in position it would have been
had promise not been made
Unjust Enrichment

party back in position it would be in
had promise not been made
Mutual Assent
Irrevocable Offers
Option K
Part performance in unilateral K

Firm offer 2-205
Offer Killed when:
Lapse of Time
Death/Incapacity of offeror
Indirect communication of revocation
offeree learns offeror will not honor promise
Valid Offer When:
Not Valid Offer:
Price quote (unless geared to specific customer, then offer)
Ad (unless definite/specific)
Jest offer-but if reasonable offeree believes, it's valid
Illusory promise
invitation for negotiation
missing quantity term
just needs to be definitely ascertained
output Ks valid
i'll buy all the X you produce next year
effective when received by offeror
b/c Mirror Image Rule
but if Sale of Goods, check UCC 2-207
-tardy acceptance usually ctroffer
can revoke before acceptance unless:
ex: subcontractor submits bid, and general contractor relies on it in computing own bid; sub can't revoke
b/c performance=method of acceptance
Bargain Theory of Consideration
past consideration=
There must be legal detriment to promisee (otherwise gift)
even if thing given up is beneficial
Secret intent doesn't matter; objective intent matters

Return promise=consideration
Promise to make gift=
Conditional Gift not consideration
ex: I'll give you a ride if you meet me at the corner
if performance of condition doesn't benefit promisor, condition not part of bargain
Moral Obligation
A promises B $20 for a book in return. Even if A secretly would've given B $20 anyway, there is consideration.
Types of Consideration
Return promise
Peppercorn: adequate consideration b/c courts don't inquire into adequacy/sufficiency of consideration
Sham consideration=

Nominal consideration=

Illusory promise
saying something was done when it wasn't; offeree hasn't given $
Consideration is given but not bargained for; given as a formality; A gives B $1 for a valuable painting
"until": inclusive but can’t count on it; should use time or prior to (then exclusive)
must be equally prominent location as offer
not effective until received by offeree
Option K
offer to K w/secondary promise not to revoke & that promise is binding for some legal reason
5 Types
Art. 2 Merch. Firm offer
Part performance
in unilateral K Re §45
In writing & signed by offeror, recites purported consideration for making of offer & proposes an exchange on fair terms w/in reasonable time (Re 87(1)
Detrimental reliance Re 87(2)
Titles of Documents & K
Letter of Intent

Memorandum of Understanding

K to Negotiate Reasonable Objective
have to look @ contents to determine whether binding
If contents imply commitment, K
Past Consideration
1. Mills v. Wyman
-P cared for D's sick son prior to his death. Father promised to compensate P. Not enforceable.
-No consideration since care of son was offered gratuitously. Son not minor.
2. Webb v. McGowin
-Falling block case. D promised P $15/week. Enforceable.
-This is covered under S86. Promisor benefitted (life saved) even though act was unrequested.

Promissory Estoppel
Relied upon promises enforceable if:
1. promise induces reliance
2. reliance foreseeable
3. enforcement necessary to avoid injustice
Hoffman v. Red Owl
P relied on promise to give him a franchise, sold his store and moved. P entitled to reliance damages.

-Use objective standard to determine whether offer has been made
-Definite terms
-immediate power of acceptance created in offeree
w/reserve price
w/out reserve
-if auctioneer doesn't get price he wants, he needn't accept
-once bid made, offer can't be withdrawn

-in uniK, offeree need not notify offeror of acceptance; only needs to begin performance
-silence=not acceptance
exceptions: prior agreement b/w parties that silence will mean acceptance
-must have knowledge of offer
-manner of acceptance

Mailbox Rule: acceptance at dispatch
Mirror Image Rule
acceptance=mirror image of offer
otherwise rejection & counteroffer
BUT if goods K b/w merchants, check UCC 2-207
Offer & Acceptance in Sale of Goods
NOT Counteroffer When:
term=implicit; just elaboration
grumbling acceptance
precatory acceptance (request)
"I accept, but could you consider doing x?"
Battle of forms--last terms before acceptance
Mirror image rule satisfied-->K If not, UCC 2-207
Different Terms
1. Knockout rule: neither prevails; go to default
2. Dropout rule: original offeror's terms
Additional Terms
Both merchants?
person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill in type of transaction
Offeror must explicitly agree to terms
Additional Terms Part of K
1. Offer expressly limited acceptance to terms of offer

2. Offeror objected to add'l term w/in reasonable time

3. Add'l term materially alters K
"acceptance of this offer is limited to the terms of this offer
Sufficient Definiteness
return promise or full performance (intent to perform bilateral or unilateral K
legal detriment
promises made in exchange for each other
@ will employment:employee & employer able to terminate employment; both parties free
K? Yes; contingent K
perform task as it's earned
terms can change @ any time & employee can quit anytime
**if covenant not part of original employment agreement, then must have new/fresh consideration
enforceable b/c of:
moral obligation
reliance/promissory estoppel
Sale of

One Year
made in recognition of prior benefit
prior benefit not gift
enforcement necessary to prevent injustice
promise not disproportionate to material benefit
Sale of Goods
Firm Offers 2-205
type of option K
irrevocable for reasonable time up to 3 mo
or whatever K states
expressly say firm offer
signed writing
contractors & subcontractors
Mailbox rule not applicable
Acceptance upon promise of notification or shipment
Conforming/Non-conforming Goods
goods must be conforming (close enough)
non-conforming goods accept offer/create K then breach K
Exception: if seller notifies buyer that goods are accommodation
uni k
• K that cannot be performed w/in year from contracting to completed performance

• Sit dog for 1 day 13 mo from now: s.o.f. applies; need signed writing
• Sit dog for next 11 months: s.o.f. doesn’t apply
• Either 1 day 13 mo from now or 11 mo: if one of options can be completed w/in 1 year, then s.o.f. does not apply

•Lifetime agreements
o A promises to perform for 5 yrs.:

; sof applies
o A promises to perform for life (indefinite duration):
enforceable w/out writing
; sof doesn’t apply
o A promises to perform for 5 years or for life whichever is shorter:
not w/in sof
o A promises to perform for 5 yrs but may be excused upon death:
w/in sof
o A promises to perform for 6 mo then renew agreement for 5 yrs:
sof doesn’t apply b/c promise can be performed w/in 1 yr
; the rest are new Ks
o A promises to employ B for 5 yrs but may terminate employment only for cause:
termination at will moves K outside sof*
• for cause: if employee breaches K, employer can exercise right of firing; termination: remedy for boK; thus, still 5 yr K; both parties obligated to perform for 5 years; sof applies

completion of performance
promise by executor of estate to pay estate's debts from executor's own assets
promise to answer debt of another
o Promise by surety must be to obligee/creditor, not to principal
Not surety
: assuming primary liability
main purpose rule
: taking over debt for own economic self-interest
Promise made
(1) by one who is not presently liable for the debt
(2) to a creditor
(3) in order to discharge the present or future obligations of a 3rd person (present debtor)
K for sale of an interest in land
Promise to
(1) buy
(2) transfer
(3) gift

mortgage (transfer not subject to sof)
lease (except short-term)

o K w/real estate agent to buy property (§126); sometimes
o Option to buy property (§127): yes
o Agreement to revoke K for buying a property: no; no transfer of interest
o Agreement resolving disputed boundary (§128): depends
o Creating a partnership doing property transactions: no
o Profiting sharing agreement b/w partners: no; not about land but about $
o Investing land ownership to a partnership: yes

o Completion of transfer by one party §125
o Part performance §129

Ks for sale of goods $500+
• Requirement
o Writing
o Signed by opposite party
• Alternative
 Written confirmation
 b/w merchants
 received w/in reasonable time
 receiving party has actual or constructive knowledge
 no written objection given w/in 10 days upon receipt
o quantity—don’t need all essential terms; only quantity
• when difference b/w document & k, smaller number counts

• Letter from buyer revoking a $10,000 order, which was received by the seller before shipment—no K
• Letter from buyer repudiating previously negotiated oral K—maybe; depends on how much K was worth—over $500?
• Letter recording $60,000 deal but never mailed to seller—even though letter not delivered, it still counts
• Seller’s invoice including essential terms but misstating payment clauses—enforceable; key essential term is quantity, not price
• Writing that indicates the making of a K, identifies the parties, and was initialed by parties but does not clarify buyer/seller or price/time/place-enforceable b/c it has quantity

o Part performance—goods specifically manufactured
o Admission of K
o Received & accepted

not applicable to mutual promises to marry
covers prenuptial agreements or Ks entered into in anticipation of marriage
Exceptions Summarized
Part performance
Specially manufactured goods
Promissory estoppel
sale of goods--if payment accepted or goods received & accepted
if goods not suitable for sale to others
sale of goods--pleading, testimony, court
(1) promisee relied to his/her detriment
(2) on promise which promisor could reasonably foresee would induce reliance
(3) injustice can only be avoided by enforcement of promise
no consideration b/c promisor has option to commit or not: "I promise to do X if I want to"
must be supported by consideration; saying "I'll keep offer open for a week so you can think about it" is insufficient
acceptance when received
estoppel forward looking; obligation made in recognition of prior benefit
Exception: Option Ks-->acceptance when offeror receives it
Promise + (foreseeable) Detrimental Reliance + Injustice
Exception: when each alternative/option would have consideration
loss in value
+ incidental/consequential loss
– cost/loss avoided
-harm resulting from breach
-if constant regardless of K, not cost
cannot exceed K price or expectation damages
cannot exceed K price
Buyer's remedies
(seller breaches)
Seller's remedies
(buyer breaches)
1. Cover 2-712

2. Market damages 2-713

3. Specific performance 2-716
1. Resale 2-706

2. Market damages 2-708

3. K price 2-709
Lost Volume Seller
proceed to market damages even though resale present b/c expectation = $0

Breach by buyer; resale by seller
Had buyer not breached, seller could've performed both the original & resale K
-$ owed (K price-downpayment)
Limitations on Recovery of Expectation Damages
-Losses resulting from breach must be reasonably foreseeable to D @ time of K

Duty to mitigate-->P must avoid unnecessary damages after D's breach
-P must show amt. of loss is reasonably certain
-Rule affects lost profits most b/c hard to calculate
projection of future profits is too speculative in new business situations
diff b/w market price & K price
Is K Voidable or Void
Happened but problem w/way it happened
As if didn't happen
• Mistake
• Incapacity
• Duress
• Undue influence
• Misrepresentation

• Incapacity (in some states)
• Duress by direct threat to violence
• Mistake (one rare type--Peerless)
P had in mind one ship; D had in mind another; ruling for D-->no manifestation of mutual assent b/c had diff. meanings in mind
• Misrepresentation (one rare type)

belief that is not in accord w/
did not assume the risk
of mistake
General rule: Ks entered into by minors=voidable
employment Ks
May disaffirm/avoid entire K before or soon after majority
failure to disaffirm ratification
disaffirmance requires restitution of what infant still has
Mental Illness
• K voidable when:
o Unable to understand in reasonable manner of nature & consequences of transaction
o Other party has reason to know of condition
includes intoxication

Pregnant cow
buyer wins
diamond sold for $1 but worth more
no mistake
: both parties bargaining in conscious ignorance
seller wins
agreed to sell cow; found out it was pregnant
: both believed cow was sterile
Misunderstanding (Peerless)-> Void
About basic assumption on which K was made that has material effect on performance
About contents of final written expression
Reform writing to reflect agreement
Show bad faith by other party
had reason to know of mistake
assertion not in accord w/facts
1. Misrepresentation
2. That is fraudulent or material
3. Induces recipient to make K
4. Recipient justifiably relied on misrepresentation
Negligent or intentional lie
intentional & don't have to show it was material
must show it was material & induced reliance
-sometimes enforce K as if misrep. were true
Duress & Undue Influence 174-177
improper threat
causing assent
when no reasonable alternative, including suit-->voidable
threats of death or serious bodily injury to party or close family-->void
Undue Influence
Unfair persuasion of party who's under domination of person exercising persuasion or who by virtue of relation b/w them is justified in assuming that person will not act in manner inconsistent w/his welfare
K voidable if assent induced by undue influence
 crime/tort
 criminal prosecution
 use of civil process made in bad faith
 threat is breach of duty of good faith & fair dealing under K w/recipient
 OR
 Not on fair terms
• Harm recipient & not significantly benefit party making threat
• Effectiveness of threat is increased by prior unfair dealing
• Use of power for illegitimate ends

Unconscionability-208; 2-302
K unfair, oppresive so no one in right senses would make
unconscionable @ time of making
unfairness in bargaining process
absence of meaningful choice
unequal bargaining power
lack of opportunity to study K & inquire about terms
terms non-negotiable
unfairness in bargaining outcome
terms unfairly one-sided
Court may refuse to enforce entire K or just unconscionable term or may limit application of unconscionable term
159, 160, 161, 162, 164, 167, 168, 169
151, 152, 153, 154, 155
12, 14, 15, 16
Illegality & Public Policy
If consideration or object of K illegal, K illegal
178, 179
Pre-Existing Duty Rule
modification only on one side is violation of Pre-existing duty rule
past promise/performance made by promisee can't be consideration for later promise (past consideration is no consideration)
-A promises to sell car to B for $10,000-->K
-A then gets B to agree to pay $500 more
-without consideration, 2nd agreement is unenforceable b/c no consideration for $500
Need signed writing?

Statutes of frauds
Parol Evidence & Interpretation
Parol Evidence Rule
Plain Meaning Rule
Missing Essential Term
Improper Purpose
-applies to terms of K
-applies only if there's an integrated writing (final written expression)
-applies only to evidence of prior or contemporaneous agreements

No-Oral-Modification Clauses
Common law: usually unenforceable
-agreement modifying a sales K needs no consideration
-BUT must meet good faith test
-note: modification needs to be mutual
Parol evidence: any evidence other than the written agreement that's offered by a party to prove contract terms that aren't in the written K
Total Integration
Partial integration
final & complete; intended to include all details of agreement
final w/respect to the terms it contains but doesn't express all details of agreement
judge decides
evidence cannot contradict integration
evidence cannot contradict or add to integration
can still provide evidence that writing incorrectly records actual agreement & needs reformation
can only admit evidence if there's ambiguity
Majority Rule
Minority Rule (CA)
ambiguity must appear w/in writing itself
Accord & Satisfaction
agreement to modify performance of original K
accord: new substitute
consideration: forbearance from suit on original K
satisfaction: performance of new agreement
If accord not performed, may sue on original K or on accord agreement
Contemporaneous writing: if signed @ same time, it's part of writing
merger clause (writing constitutes sole agreement)=indication of total integration
Ambiguous->extrinsic evidence allowed (evaluated by jury)
Unamiguous->judge decides meaning; extrinsic evidence not allowed
Courts disagree about what evidence may be considered to determine whether there is ambiguity:
parol evidence may be admitted to show a term is ambiguous
Course of Dealing & Usage of Trade
Express terms
Course of performance:

the way parties acted previously in performing this K
Course of dealing:

how parties acted in past Ks
Usage of trade:
custom of trade, vocation, or place
May be used to interpret complete integration
-If caught early, could prevent formation of K b/c of indefiniteness or excuse parties due to impracticability
-But court can supply a term reasonable in circumstances
Default rule: refuse all remedies
Exception: enforceable by one not in pari delicto (not in equal fault)
Special Scrutiny:

Adhesion Ks w/unexpected harsh terms (standardized form Ks)
Pre- & post nuptial agreements
exculpation or indemnity w/out scienter
covenants not to compete
must protect legitimate interest
must be reasonable in time, space & subject matter
must not be unreasonably burdensome on restrained party
must not harm public interest


Article II Gap Fillers
o Reasonable price
o Delivery
• Default: seller’s place of business
• If no pob→seller’s residence
o Payment
• In full @ time & place of delivery
• No gap filler for who pays for delivery

Implied warranty of merchantability
P must show goods weren't merchantable & injury to P or P's property proximately caused by defect
Implied warranty of fitness for particular purpose
1. seller has reason to know of buyer's particular purpose for goods
2. seller has reason to know buyer relies on seller's skills/judgment in furnishing goods
3. buyer relies on seller's skill/judgment in purchasing goods
Warranty of title

Workmanlike manner (like malpractice)
can be express (created by parties) or constructive (inferredby court)
ex: "duty to pay conditional on satisfaction"
must be substantially performed
Conditions trigger, suspend, or excuse duties
Occur - Can be satisfied or fail (not breached)
Precedent, Subsequent, Concurrent
all or nothing
Common Law
-Right to cure (fix mistake)
-Substantial performance
the more one has performed, the less likely it's a material breach
--UNLESS it's willful breach
-Perfect tender rule
buyer may reject goods unless seller's tender (goods & delivery) conforms in every respect to K
-Right to cure: only w/in time period of K (before delivery due)
BUT course of dealing, performance, usage of trade-->may have further reasonable time to substitute a conforming tender
promise to perform despite non-occurrence of condition
if waived before time for occurrence, can reinstate requirement (unless unjust)

waiver after time for occurrence cannot be retracted
Quantum meruit: reasonable value of services (for party in breach)
Material & Partial Breach
Not material
-must continue performance, treat as partial breach
-cannot suspend/terminate but can get damages
-Choose b/w partial breach & total breach
-may continue performance & sue for damages up to that point or suspend performance & sue for entire K
Installment K Exception
Slight non-conformity not enough
Must give seller chance to cure, even if noncomformity major
But if nonconformity in early installment, party may have reasonable fears that other party will not adequately perform later installments
Anticipatory Repudiation
If party makes it clear that s/he will not perform-->s/he anticipatorily repudiated K
may sue before repudiator's time for performance
What constitutes repudiation:
statement (cannot be vague doubts)
failure to give assurance of performance
grudging willingness to perform/indication that s/he wants out of the deal
NOT anticipatory repudiation
act that makes performance impossible
inability to perform
Repudiation can be retracted until:
time for repudiated performance has passed
injured party materially changes position in reliance
injured party considers repudiation final
failure of condition
prior material breach
impossibility or commercial impracticability
force majeure or act of God
Frustration of purpose
Re §241
Circumstances Significant in Determining Whether a Failure is Material
o Extent to which injured party will be deprived
o Extent to which injured party can be adequately compensated
o Extent to which party failing to perform will suffer forfeiture
o Likelihood that party failing to perform will cure his failure
o Extent to which behavior of the party failing to perform comports w/standards of good faith & fair dealing

General rule: if performance infeasible, promisor excused
Specific rules:
death of critical person
destruction of essential thing
supervening illegality
o Force majeure
• Party anticipates an event that it cannot readily prevent & that might impede its performance, so it introduces force majeure clause to excuse it from performance
• Foreseen events (regular, normal problems) cannot be in force majeure clause

performance possible but pointless from pov of both sides
ex: King coronation
factors to consider: foreseeability & totality
may sue
in contemplation of both parties
Creditor beneficiary: If performance will satisfy obligation of promisee to pay $ to beneficiary
ex: A agrees to paint B's house; K says A should pay to C b/c B owes C
Donee beneficiary: If promisee intends to give beneficiary benefit
ex: A makes K w/B to make portrait of C & give it to C; b/c B intends for C to get benefit of performance, C intended beneficiary
may not sue promisor
Assignment: transfer of rights
don't need consideration
obligor must be notified
Delegation: transfer of duties
does not release original obligor unless novation
Full transcript