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Contracts Outline

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Victoria Pugh

on 6 December 2013

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Transcript of Contracts Outline

Contracts Outline
K = agreement between two or more parties with a legal effect.

Offer + acceptance + consideration = contract

Offer is a manifestation of an intent to be bound/enter a bargain.
Acceptance is a manifestation of an assent to the offer's offer.
Mutual Assent

Meeting of the minds: parties must be in agreement on the terms otherwise there is no contract.
Subjective test: What each party says they meant.
Objective test: what a reasonable person would say each party meant by their actions/evidence. Did their manifestations indicate a meeting of the minds.

Must be communicated
Gives "power of acceptance" to offeree
Offer can only be accepted by party to whom the offer is made.
Recognizing an offer:
Ads/circulars/form letters: not offers, unlimited liability.
Exc.: bait and switch

manifestation of assent to the offer.
Notice required for bilateral K
Notice not required for unilateral K unless not immediately obvious
Silence can never be acceptance except in pattern relationship.
Mailbox rule: An acceptance is valid once it is sent unless the offeror specifies that acceptance must be received.
Mailbox Rule
General rule: acceptance is effective when mailed.
reasonable means of communication.
properly mailed
even if never received.
Offeror specifies must be received.
Option K must be received.
Vacillating offeree:
Acceptance mailed then rejection
whatever offeror relies on
Acceptance mailed and received first: MB rule
Rejection first, no MB rule
4 ways to terminate:
1. Revocation
2. Death or incapacity
3. Lapse
4. Rejection

General Rule: offeree is free to revoke offer and at any time before acceptance.
4 exceptions:
Unilateral Ks: R2d 45=if offeree tenders or begins performance offeror cannot revoke.
Bilateral Ks R87: reliance
Option K-consideration for offer to be left open.
Firm offer 2-205
Can revoke through words or conduct but must be communicated to offeree before acceptance.
Death or Incapacity
Even if one party is unaware of the death or incapacity, the offer is terminated.
Offer lapses at the time stated by offeror OR
Upon specific event.
If no time state, reasonable time.
End of face to face or telephonic convo.
Common law Mirror image rule states that acceptance must mirror offer.
meeting of the minds
response doesn't mirror
Offeree becomes offeror
Counteroffer is a rejection and new offer.
Grumbling acceptance/inquiry is not rejection.
complaint is not accept or reject-does not terminate.
inquiry does not terminate
Types of Contracts
Bilateral Contracts: Promise for a promise
commitment now for future performance
may be inferred from beginning/preparing to perform
Not necessary to verbalize exchange of promise, return promise can be inferred.
Acceptance: offeror must be notified.
1. General rule: offer can be revoked at any time before acceptance
2. Subcontractor's offer is irrevocable because of reliance
-GK must accept w/n reasonable time of award.
3. Use of SK's bid by GK is subject to implied condition that GK be awarded K
Unilateral Contracts
Promise for performance
not mutuality of obligation
Acceptance: notice not required unless offeror would not quickly recognize completion.
1. Traditional view: offer is revocable at any time before completion
2. Modern view: R2d 45: cannot be revoked of offeree has tendered or begun performance.
Option contract
Promise to leave an offer open.
irrevocable for time stated
nominal consideration is enough
mailbox rule does not apply-effective when received.
Employment At-Will Contracts
Generally considered gratuitous promises.
The Uniform Commercial Code
The Uniform Commercial Code overseas contracts for goods.
Goods=moveable objects
Test to determine whether a K is for goods or services:
1. Language
2. Nature of business
3. Intrinsic value of materials

2-205 The Firm Offer
Must have an
By a
for the sale of
must be a
signed writing
logo, letterheard, initials
which gives assurance that it will be held open.
may be implied
Irrevocable for the time stated or a reasonable time not to exceed 3 months.
After time stated, can be revoked.
U.C.C. 2-207 "Battle of the forms"
Departure from the c/l mirror image rule.
Focuses on the acceptance.
For the sale of goods.
First ask (1) Is the contract of the sale of goods?
If yes, use 2-207.
Is there additional terms in the acknowledgement?
If yes, then ask is there expressly conditional language in the acknowledgement?
If there is expressly conditional language then you go to subsection (3) of 2-207.
Did the parties act as if they had a contract?

, then they have a contract and the terms are those the parties agreed upon.

, then they do not have a contract.
Is the contract between merchants?

, then the additional terms become part of the contract. Unless:
1. offer expressly limits acceptance to terms in offer.
2. Materially alters K
3. Objected to within a reasonable time.
, then the additional terms do not become part of the contract. Different terms-knock out doctrine.
Promisee gives up a legal right.
Courts will not examine adequacy of consideration.
Past consideration is not consideration.

Two theories:
Bargain for exchange
There must be either a benefit to the promisor OR
A detriment to the promisee
-courts tend to focus more on the detriment to promisee.
Bargain for Exchange
1. Promise by promisor
-assurance the thing willl or will note done.
2. Promise or performance by promisee.
3. Promise/performance sought by promisor.
-may be gratuitous promise with condition attached.
4. Promise or performance in exchange for promisor's promise?
Enforceable Promises
Promissory Estoppel
Applies as an alternative to consideration.
Reliance on a promise.
No bargained for exchange.
R90: a promise made without consideration may be enforced to prevent injustice if the promisor should hav ereasonably expected the promisee to rly on the promise and if the promisee actually did rely on the promise to his or her detriment.
-courts have more discretion, estopps promisor from asserting not consideration.
-Charitable pledge requires reliance.
1. Promise by promisor
-promisory language
-not illusory
2. Promisor reasonably expect promise to induce action or forbearance by promisee or third party.
3. Promise induced action or forbearance
4. Enforcement of promise is necessary to avoid injustice.
Gratuitous Promise with condition attached
Usually not enforceable, unless can prove reliance for promissory estoppel.
Policy wise-donations generally not enforceable.
Analysis will turn on promissory estoppel
was there reliance?
was there a benefit to the promisor?
R290 has a provision that says charitable pledges are enforceable without reliance.
makes it easier for charities to collect
not widely adopted.
Restitution is where a party is unjustly enriched at another party's expense, that party is required to make restitution.
Obligation in absence of exchange.
no promise/bargainforexchange/reliance
2 requirements:
1. party must be enriched
2. and retention of benefits without compensation would be unjust.
General Restitution Principles
Recipient of services who knows provider reasonably expects to be paid is liable for reasonable value of services.
Benefit is generally unrequested. No promise
Emergency assistance is presumed gratuitous.
Unless they acted in a professional capacity(doctor in public).
Services were excessively burdensome.
Benefit vs. Value of Services
benefit is debatable in light of cost sometimes.
One who is admitted to hospital unconscious and dies there, no benefit.
Benefit is measured by:
1. Benefit to recipient.
2. OR value of services rendered.

Health/Life: R116
One who provides services to another without knowledge or consent is entitled to restitution if:
1. Person acts unofficiously and with intent to charge.
2. Services were necessary to preserve health/life.
3. No opportunity to obtain consent.
4. No reason to believe consent would not have been given.
Property: R117
One who acts to preserve another's property without consent is entitled to restitution if:
1. In lawful possession of property
2. Services not made necessary be breach of duty.
3. And services were accepted by other party.
4. No opportunity to obtain consent.
5. No reason to believe consent would not have been given.
6. Intent to charge.
Restitution Contracts
1. Express contracts=promissory words
2. Implied in fact K=conduct of parties
3. Implied-in-law K=imposed on the parties by the court to do justice.
intent and mutual assent not required.
No direct relationship b/w parties is required.
E.g. Owner, GK and SK
GK doesn't pay SK, SK can recover from O if:
1. Remedies against GK fail
2. O has not paid anyone.
3. If SK cannot recover due to mechanics lien, c/l remedy depends on statutory language.
Mechanics Lien Statute
Statutory encumbrance against real property for value of improvements to property.
Remedy for a subcontractor
Statutory requirements must be complied with:
filing in a specified time
mechanic can get lien against owner's property even if O has paid GK.
O may have to pay twice.
Lien Waiver
Used by O to avoid paying twice.
SK waies right to place lien on property
O obtains SK's signature before paying.
SK signs agreeing not to place a lien against the property.
Promissory Restitution
Promise to compensate after benefit has been conferred and the service was not requested.
Is it enforceable?
Two views: Some jurisdictions follow traditional(NC) others follow modern.

Traditional view:
1. Traditional view:Mills: subsequent promise to pay for unrequested benefit is unenforceable.
a. Exception: promise is enforceable if based on a prior legal obligation that is no longer enforceable because of legal impediment.
i. must be for $
ii. Is enforceable only to extent promised
iii. requirements vary
1. NC says the promise must be in writing..
2. Express promise
3. Implied promise from part payment or debt admission.
Modern View
Modern view: Webb: "material benefit" rule
a. Moral obligation is consideration to support subsequent promise to pay where promise received a material benefit.
1. Promise made in recognition or previous benefit is binding to the extent necessary to avoid injustice.
2. Promise is not binding if:
i. Benefit was a gift.
ii. to extent its value is disproportionate to the benefit received.
Agreements to Agree
Applies where parties have presumably entered into a contract with a material term missing.
Terms need to be specific, detailed and definite for courts to enforce.
Material terms: price, quantity, payment terms, description, quality.

Present intent to be bound factors:
1. Whether agreement is the type normally reduced to writing.
2. Details discussed and/or agreed upon.
3. Language
a. intent to be bound
b. letter of intent, negotiations,

If intent to be bound, K is enforceable even if price is not settled.
Same as 2-305 but applies to all contracts, not just goods.
Where more than one terms are left open, K will not fail for indefiniteness if the intent for the contract is there as well as a reasonably certain basis for providing relief.
Agreements to Agree enforcement
Three scenarios:
1. parties purport to agree on a material term but leave the term indefinite.
a. E.g. "fair share" of profits.
b. Traditional view-if promise is too vague and indefinite, agreement not enforceable.
c. Modern view- towards the court finding ways to enforce the promise.
2. Parties are silent on material term- no price stated or no time stated.
a. Sometimes parties will purposefully leave parts out.
b. court may imply term using external sources such as industry standards, market value. Courts more willing here.
3. Parties agree to agree but can't:
a. Traditional view: not binding K unless parties agree upon a definite method.
b. Modern view: if term can be ascertained to carry out mutual intent with sufficient certainty, court will enforce.
Statute of Frauds
Requires certain contracts to be in writing.
Meant to promote certainty and deliberation before entering into a contract.
Reduces potential for fraudulent claims.
First ask: is this the type of contract that falls under statute of frauds?
Types of K's under Statute of Frauds
1. Suretyship: K to answer for the debt of another.

2. K for the sale of interest in land.

3. K not to be performed within a year.

4. K for the sale of goods for $500+
$ over 500
3 parties:
1. Debtor/principal
3. Creditor
Must be a promise made to C by P.
4 Exceptions:
1. no underlying obligation from D to C
2. Novation: C accept's P's oral promise to pay D's debt and discharges D.
3. Joint promise/obligation.
4. "Main purpose" or "Leading object rule"
if surety is for purpose of benefitting P then not under SOF
K for sale of Interest in Land
"land"=any real property
"interest" cana be something less than outright sale.
Leases, option to buy, easement, etc.
note-most states exempt short term leases(under 3 years)
K not to be performed w/n a year
Look when contract was MADE, when it can be completed.
If longer than a year, SOF
Long term K's that need to be in writing.
Law disregards fractions of a day.
If it is possible to complete within a year, then it does not have to be in writing.
K for sale of goods 500+
Governed by UCC 2-201
Crops are goods
Writing Requirement
Writing referred to as a memorandum:
Not as formal as you would think.
receipts, invoices, checks, wills, letters.
1. Must be signed by party against whom enforcement is sought.
2.Must contain the following:
Identifies the parties.
Subject matter
Signed by party being charged
If more than one memorandum:
One view: at least one writing has to be signed and must refer to the other writings.
Better view: 2+ documents can be combined for form memo if documents together have essential terms and at least one is signed by party being charged. Other documents must demonstrate they relate to same transaction.
K does not need to be in writing if it falls under one of these exceptions:
1. Part performance doctrine: applies to K for sale of interest in land.
based on reliance.
must have possession, make improvements or partial payment.
Court will only order specific performance not $
Promissory Estoppel: 3 views
1. It doesn't apply.
2. (R1) Only applies where the party promises to reduce to writing, but doesn't.
3. R2d 129: similar to R87-K is enforceable if reliance on promise was foreseeable, reasonable and substantial, and enforcement is necessary to avoid injustice.
U.C.C 2-201:
UCC 2-201
K for sale of goods 500+
1. General rule: unenforceable unless in writing.
signed by party being charged.
must contain quantity.
2. Merchant's exception: between merchants
writing in confirmation of K
sufficient against sender
received within reasonable time of K
Party in receipt has reason to know of contents.
3. Will constitute a K unless:
written objection within 10 days.
or SOF defense is revoked.
General Exceptions
1. "specially manufactured" goods
made specifically for buyer.
2. Admission of K in court proceedings.
3. "Part performance"- K can be enforced to extent that payment has been made or accepted. Or
-extent to which goods have been received or accepted.
Principles of Interpretation
Helps determine the meaning of the K, meeting of the minds.
disputes arise from vagueness, ambiguity, inability to foresee certain issues, and deliberate vagueness.
3 approaches:
Modified objective
Modified Objective
Evidence of parties intentions plus other evidence.
No K if parties attach different meanings to the language AND
neither party knows or has reason to know of the other's meaning.
If one party knows the other's meaning and acts inconsistent, court will rule in favor of innocent party.
Rules in Aid of Interpretation
Principle purpose given great weight.
Surrounding circumstances
Specific term controls over general.
Negotiated terms control over standardized; handwritten/typed over print.
Language construed against drafter.
Public interest interpretation preferred.
Word may be affected by its immediate context.
Interpretation resulting in reasonable agreement preferred over one that produces unreasonable unlawful result.
"Plain Meaning Rule"
If language is "plain on its face", that meaning is going to govern.
no reason for interpretation because it is not ambiguous.
Criticism: no such thing as 'plain meaning' most words have more than 1 meaning.
Modern trend away from plain meaning rule.
Doctrine of Reasonable Expectations
Typically for insurance K's
Public policy doctrine
Idea behind: standardized contracts typically on a "take it or leave it" basis, no negotiation.
reflects that people don't read the fine print and have no bargaining power.
Most jurisdictions
C&J test:(ODCI)
Is the term unusual or oppressive?
Does the term eliminate the dominant purpose of K?
Did insured have reason to believe coverage would be included?
Is the term inconsistent with the negotiated terms?
Parole Evidence Rule
Decides whether prior or contemporaneous agreements are admissible into a contract.
Is it integrated(final expression of parties agreement?)
Is it totally or partially integrated?
Traditional/Williston: Merger clause?
If no, four corners rule/subject matter test
If writing appears on its face to be entire agreement then total, UNLESS:
If alleged consistent term would not have naturally been included in the writing.
If subject matter of consistent term not dealt with in writing, consistent term would not have naturally been included.
Modern/Corbin: All circumstances are considered.
Exception: Fraud

UCC 2-202 PER for sale of goods
The final expression of the parties agreement:
Cannot be contradicted by:
Prior oral or written agrument or
contemporaneous oral agreement
but can be by contemporaneous written agreements
but may be explained or supplemented by:
course of dealings, trade usage, course of performance, consistent additional terms.
Trade usage(1-205)-practices or methods having such regularity of observance in place, vocation or trade that it justifies expectation parties will observe.
Course of dealings(1-205)-conduct between parties before agreement in question.
Course of performance(1-208)-conduct by parties after agreement in question
accepted without question.
Collateral agreements
Evidence offered to explain writing
Evidence to invalidate(fraud, mistake, etc.)
Evidence after the writing
Reformation of K
If party is trying to prove contract is invalid it will always be admitted.
If party is trying to admit evidence to explain the writing.
Traditional/Williston-plain meaning rule
Modern/Corbin-reasonably susceptible test.
Supplementing the Agreement
Implied in fact-parties would have included term but it was obvious
Implied in law-court implies the term.
4 types of terms may be implied:
1. Best efforts-Wood v. Lucy, implied promise to put forth best effort.
2. Good faith-Observance of commercially reasonable standards.
Implied in every contract for sale of goods.
Objective-reasonable person test
Subjective-up to personal taste or service
Good faith not really implied in employment Ks
3. Notice of termination-reasonable notice required under UCC
4. Implied Warranties-for the sale of goods
Implied Warranties
1. Express warranty-(2-313): created by seller's representation.
2. Implied Warranty of Merchantability(2-314): Merchant warrants goods are fit for ordinary purposes for which it is used.
3. Implied Warranty of Fitness for a particular purpose(2-315)-seller is aware of purpose for which buyer bought the goods
4. Implied warranties of Habitability-leases, new home sales meet minimum requirements
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