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					Contracts-Andrews-Fall 2011
How to answer a final question
   1. Rule of law and why (UCC v Restatement)
   2. Is there a contract?
           a. A valid contract must have:
              1. Must not go against public policy
              2. Mutual Assent (meeting of the minds)
                      a. An offer has to be made
                      b. An valid acceptance given
              3. There must be an exchange of value (consideration)
              4. Must be legal (statute of frauds, implied covenants, defenses)
   3. Is there a way to measure a remedy

Must not go against public policy
           (1) § 178-179
               (a) § 178- if legislature says that it is unenforceable or if its enforcement is clearly against public
                   interest. The contract will be called unenforceable
               (b) § 179-says that the bases of public policies against enforcement are
                   i Legislation
                   ii The need to protect some aspect of public welfare such as:
                        Restraint of trade
                        Impairment of family relations
                        Interference with other protected interest

Mutual Assent
     Mutual assent can usually be found by finding the offer and acceptance but not necessarily so—THERE

       Restatement § 24 an offer is the manifestation of willingness to enter into a bargain made so the offeree
       knows that all it will take to complete it is his consent
       UCC § 2-206 an offer to make a contract is inviting acceptance in any manner reasonable
1) There must be a serious, objective intention by the offeror.

2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court
can ascertain the terms of the contract.

3) The offer must be communicated to the offeree.

Issues in offer

       Is in an offer or an advertisement?
                      Restatement § 26- the manifestation will not be an offer if either party would need to
                       do more than just say yes to conclude the bargain. (Nebraska seed co v. harsh)
                      If the terms are vague (fair or reasonable) then it is not an offer
                      If a reasonable person would know that, it is not an offer.
                      It can be an advertisement and an offer if it says a specific quantity and limits who can
               If it is a reward, it can be an offer because it would be limited by its nature.

There are open terms is it still an offer?
        Under Restatement § 33 it cannot form a contract unless the terms are reasonable certain (must
        have price and description)
        UCC § 2-305-310 if all parties wanted to be bound then the court will substitute reasonable
        terms rather than void the contract (must have quantity).
                They are reasonably certain when they provide a basis for determining breach and

Agreement to agree?
        If there is an agreement to agree it can be a contract if the parties manifested intent to be
        bound (Texaco v. Pennzoil) if the say subject to or some other term then there is no intent to be
        bound so no contract (Empro v. Ball-co)

One party did not mean to contract?
        If one party did not mean to offer then it will be a subjective and objective test. Did the π
        believe it was an offer, would a reasonable person have thought it was an offer your secret
        intent does not matter (Embry v. Hargadine, McKittrick Dry Goods Co. & Lucy v. Zehmer)

Option contracts
        An option contract is one where consideration limits the promisor’s power to revoke. (MUST

Killing an offer
There are five ways to kill an offer in the restatement § 36
                    1. rejection or counter-offer
                    2. lapse of time
                    3. revocation (direct or indirect notification of revocation before it takes effect-
                         Dickinson v. Dodds)
                    4. death or incapacity of either party
                    5. non-occurrence of any term of acceptance

Limitations on revocation:
               The UCC § 2-205 FIRM OFFER RULE states that if you say you will leave a time open then
                you must leave it open for a reasonable time no more than 3 months.
               If it is a valid option contract then it cannot be revoked outside of the terms
               If there is reliance that is reasonably foreseeable and detrimental of the oferee
               If there the acceptance by performance has began
                1. A manifestation of assent by the offeree to the terms of the offer;
                      There must be commitment.
                               The commitment must not be conditional.
                               The commitment must be on the terms proposed without variation.
                2. The acceptance must be made in the manner invited or required by the
                          The second element of an acceptance is the manner in which acceptance is
                           made. Typically, an offer is accepted when the offeree promises to perform
                           the terms of the offer. See Restatement § 50 comment c. Since an offeror is
                           master of the offer, though, the offeror can specify that the offer can be
                           accepted by performance or by the offeree making a promise to perform.
                           Sometimes, however, the offer does not specify the manner of acceptance
                           and in such cases, the offeree can accept in any manner reasonable under
                           the circumstances. Restatement § 32.
                3. The acceptance must occur while the offer is still open, i.e., if the offer has already
                been revoked, the acceptance is not effective to create a contract.

          Issues in acceptance
                Who can accept an offer?
                       An offer can only be accepted by the person or persons to whom it is addressed.
                       Sometimes an offer may be directed to a group of persons, perhaps even to an
                       unlimited number of persons, such as the public. Who can accept is determined by the
                       terms of the offer. In addition to being a person who can accept an offer, an effective
                       acceptance must also be made by a person having knowledge of an offer

                Rejection or Acceptance?
                       An inquiry regarding the possibility of different terms, a request for a better offer, or a
                       comment upon the terms of the offer, is ordinarily not a rejection of the original offer.

                Acceptance or counter-offer Restatement?
                       Mirror Image Rule (Restatement § 61) if the acceptance is made to depend on new
                       terms it is a counter offer and will kill the original offer, if it is merely a request it will not
                       be a counteroffer it will be an acceptance.

                UCC Acceptance or counter-offer? UCC § 2-207
                       This section is designed to negate the mirror image rule in cases involving the sale of
                       goods. Under the UCC, it is an acceptance even though it states terms additional to or
                       different from those offered, unless acceptance is expressly made conditional on assent
                       to the additional or different terms.
                Additional Terms
                          If there is an effective acceptance, additional terms are treated as proposals for
                           addition to the contract.
                          If the parties are both merchants, the additional terms become part of the
                           contract unless (1) the offer expressly limits acceptance to the terms of the
                           offer; (2) the additional terms would materially alter the contract; or (3) the
                           offeror notifies the offeree in advance or within a reasonable time that he or
                           she objects to the additional terms.
                          If the either party is a non-merchant, the additional terms are discarded.

            When is the acceptance valid?
                   MAILBOX RULE-Under Restatement § 63 an offer is valid when it leaves the offeree’s
                   possession (i.e. dropped in the mail). At that point, there can NO MORE revocation from
                   either party! This rule can be avoided by putting in the offer when the acceptance will
                   be valid.

     Accept by performance or promise?
                   A unilateral contract is one that can be accepted by performance a bilateral contract
                   must be accept with a promise.
                   When an offer invited acceptance by performance no notification of acceptance is
                   required unless stated in the offer
                   When the offeree begins performance, the Offeror is bound conditionally until
                   performance is complete.
                   If in doubt, it is up to the offeree to determine the mode of acceptance

            Notice required on unilateral contract?
                   (1) Notice is not required unless requested by the offer. (Carlill v. carbolic smoke)
                   (2) If the oferee has reason to know that the offeror has no adequate
                   Means of learning of performance then they must notify in a timely matter

            Acceptance by silence
                   Traditionally you cannot accept by silence unless you have done so in the past. (Hobbs
                   v. Massasoit Whip)
                   Although acceptance by silence is exceptional, what if the offeree actually exercises
                   dominion over goods that are delivered without request? Although silence does not
                   typically constitute acceptance, an offeree who receives goods and exercises dominion
                   over them will be deemed to have accepted the goods even though the offeree does
                   not intend to accept

                   For a click thru terms in order for it to be a valid acceptance, you must HAVE TO SEE
                   AND CLICK to accept.

Exchange in value (Consideration)
        o   Symbol to let everyone know there is a contract
         o   Bargained for Exchange=Determent to one or benefit to another-The recitation that there is
             consideration seems to be enough. (A signed contract)
                  Sought by the promisor in exchange for his promise and has been given in exchange for
                    that promise
      Gratuitous Promises
                    Hamer v. Sidway (uncle promises nephew)
                    Restatement § 24 (b)
                    Restatement71: To constitute consideration, a performance or a return promise must
                     be bargained for.” Bargained if: sought by promisor in exchange for his promise and is
                     given by the promisee in exchange for that promise—including forbearance, act other
                     than a promise, creation, modification, or destruction of legal relation and may be made
                     by third party or given to a third party
                    --“Bargain” does not require actual haggling.
      Past Consideration
                  Past consideration is no consideration (Moore v Elmer)

      Moral Consideration
                     No gain or loss (mills v wyman)-taking care of dead son.
                     However if one gets a HUGE material benefit (i.e. their life is saved), and subsequently
                     make a promise of thanks, the huge benefit counts as consideration Services rendered
                     carried with presumption of gratitude. Therefore it can be seen as consideration.
                     (Webb v McGowin)—Restatement § 86-may be enforced to prevent injustice.

Legality (writing, implied and defenses)
Statute of Frauds
             Contracts that must be written Restatement § 110 writing must include:
                                1. Subject matter
                                2. Demonstrates a contract has been made between the parties
                                3. Essential terms with reasonable certainty
                                4. The Δ must sign
             The following must be in writing
                i) *Surety ship provision (co-signor/guaranteeor)
                ii) *Spouse will get something because of Marriage (dowry)
                iii) *Land-restatement § 125—all contracts relating to land except if land already
                     transferred then it does not have to be in writing Restatement 129-if one party reliance
                     and no writing then statute of frauds should still win! If both parties agree
                iv) *Performance not to be complete within one Year from time contract is made; all
                     changes must also be in writing until performance is complete. Restatement § 130
                v) *Goods more than $500 (UCC 2-201(1))
                vi) 1-206
             UCC § 2-201
             Note the difference between the two

                     a) Promissory estoppel can take K out of Stat. of Frauds (REST.)
                     b) So can UCC 2-201(3)(b)—Specially manufactured for buyer and manufacturer has
                        made “substantial beginning” before notification and not suitable to sell elsewhere
                        under seller’s business (UCC)
                     c) Admissions in testimony or otherwise in court (UCC)
                     d) Restatement § 139-reliance damages may be recovered in spite of not having a
                        written agreement (must show change in position)—if injustice may occur
      Validity of a signature
             Restatement § 101
                 1. Can be electronic
                 2. Electronic in the formation or signature

Parol Evidence Rule-when any contract is written and fully integrated (gated hard to get
                    Meaning of terms limited if there is a writing
                    Restatement § 209 Integrated contract is a contract that is written and intend by both
                     parties to be complete. (usually a clause in the contract)
                  An integrated contract cannot be contradicted or supplemented.(with in the four
                     corners of the contract)
                  A partially integrated contract (intend to be final but not complete)ONE PART
                     INTEGRATED ONE PART NOT
                          may be supplemented but not contradicted. Restatement § 215
                          Oral arguments may be used to clarify things the contract doesn’t completely
                              cover (Brown V Oliver)
                          If the words seem clear but the intent is not (Trident Center)
                          If both π and Δ interpretation is reasonable then oral evidence may be admitted
                              to determine intent (Pacific Gas and Electric)
                          The party in error may reform the contract if there has been no reliance based
                              on a mistake (Δ must claim change position to claim reliance) Travelers
                              Insurance v Bailey
         o   Therefore in order to determine when to use parol evidence or how to interpret words, first
             determine whether contract was completely or partially integrated: scope (integrated as to
             what) (Restatement210(3))
                  Note: If vagueness, then use extrinsic evidence to interpret. If gaps, then think
                     “indefiniteness and therefore no contract.”

Interpreting the meaning of terms agreed upon
             1. Ambiguous terms-Raffles v. Wichelhaus (Peerless)
                  a. Restatement § 201 whose meaning prevails?
                            i. If π and Δ both have same meaning it sticks
                            ii. If there are different meanings it will be one party that didn’t know (or have
                                reason to know)there was another meaning that could be attached and the
                                other party did
                            iii.     All other cases means no k
                  b. Restatement § 202-how to interpret the meaning
                                   i. Whenever possible, express terms, course of performance, course of
                                       dealings, and usage of trade shall be interpreted as consistent with each
                         c. Unless otherwise expressed, language is interpreted in accordance to its generally
                            prevailing meaning
                         d. Technical terms and words of art are given their technical meaning when used in a
                            transaction within their technical field
                         e. If that is impossible, then the hierarchy of which meaning controls shall be in the
                            following manner: [UCC §2-208/Restatement§202(4)]
                                   i. Express Terms
                                   ii. Course of Performance
                                   iii.    Course of Dealings
                                   iv.     Usage of Trade

                Requirements Contracts
                         UCC § 2-306 “Requirements” contract in which buyer provided exclusivity agreement to
                         seller, thus establishing mutuality. Requirement contract OK if 1) Mutuality of some
                         kind exists (usually through an exclusivity clause) and 2) surge in demand from buyer is
                         not unreasonable. Courts assume good faith.
                Identifying the terms
                         Form Contracts-restatement § 211 treated as a similarly situated person

                Terms to follow later
                         I think that it means that you must read the terms within a reasonable time and return it
                         if you don’t agree

Promissory Estoppel-Hawthorne v Red Owl (grocery store case)
          If consideration or writing is lacking- there for making no contract- promissory estoppel can substitute.
I.e. if you promise something to get behavior to change the change in behavior can be consideration A PROMISE
REASONABLY RELIED ON BECOMES BINDING for recovery of damages (reliance).
Restatement § 90 Promissory estoppel used when 3 conditions are met
    1) Promise reasonably expected to induce action or forbearance-Blatt v U of Southern Cal.
    2) reasonable Detrimental reliance on part of promisor (Alden v. Vernon Presley)
    3) Injustice unavoidable without enforcement.

Dynamic damages-must be enough to be fair
Implied Convents and Warranties
Implied duty of a goof faith performance:
            o   Restatement § 205: every contract imposes upon each party a duty of good faith and fair
                dealing in its performance and its enforcement.
            o   UCC §§ 1-203; 2-103-samee34
            o   Not only a performance in good faith but also a duty to avoid taking advantage of gaps in a
                contract in order to exploit the vulnerabilities that arise.
            o   Think of requirements contracts
        Implied warranties-only available in UCC
                 A)      UCC § 2-314-warranties of merchantability
                      1) Must be a merchant
                      2) Goods must be at least
                      a)      Pass without objection the regular description
                      b)      Fair to average quality
                      c)      Fit for ordinary purposes
                      d)      Each unit and the whole group must fit with in the description
                      e)      Adequately contained and packaged (per the contract)
                      f)      Conform to promises made on the label
                  3) Unless contract says otherwise it also must conform any implied warranty in the
                       regular usage of trade
                 B) UCC § 2-315 warranties of fitness
                      1)      When the seller has reason to know the use
                      2)     When the buyer is relying on the sellers skill and judgment to get suitable goods
               Goods must work for what they are purchased to work for (iPhone must make calls)
       Express warranties
               A) A warranty that is stated during contracting will be enforced even if it would not be if it was
                  just implied.
               B) UCC 2-313
                       1. Express warranties are stated as follows
                                  a. When it is stated and becomes the basis of the bargain
                                  b. Any description that is the basis of the bargain
                                  c. Any sample that is the basis of the bargain
                       2. It is not necessary to use the formal language but if it is just the sellers opinion it is
                          not a warranty
       Express Disclaimers of Warranties
               UCC § 2-316 the implied warranties only go into effect if the parties are silent they are allowed
               to contract around the warranty.

Misrepresentation-Halpert v. Rosenthal-
       1) Restatement § 159-misrepresentation defined
          1. An assertion that is not in accord with the facts
       2) Restatement § 162-when misrepresentation is fraudulent or material
          1. A misrepresentation is fraudulent if the maker intents to induce the party to manifest his assent
              AND when the maker
              a. Knows the misrepresentation is not in accord with the facts
              b. Does not have confidence in his statement or implies that it is true
              c. Knows he does not have the basis he states
          2. A misrepresentation is material if it is likely is likely to induce a reasonable person into giving
              assent and maker knows that it is likely that it induced assent (objective and subjective tests)
       3) Restatement § 164-When a misrepresentation make the contract voidable
          1. It is voidable by victim side if it is fraudulent or material misrepresentation
          2. If a third party does the fraud/misrepresentation then the victim may void the contract unless
              the other party did not know or have reason to know (Byers v. federal land co)
       4) Restatement § 167-explain when misrepresentation causes inducement
          1. It induces when it substantially contributes to the choice to assent
       Absence of a meaningful choice-what you get back is so much less than what you gave
     Possible remedies include; damages, specific performance, injunction
         There are three kinds of damages-it will be π choice or? Courts choice?
         Expectation Damages (as if the contract was performed)-Restatement § 347-an injury party has
         the right to damages and the default damages are expectation damages,
         Calculated by (1) actual loss in value or profits+ (2) consequential damages+ (3) incidental
         damages-(4) cost/loss avoided—(Hawkins v. McGee)
         Reliance Interest Damages (as if the contract never entered into)-Restatement § 349- this would
         be calculated by calculating all costs injured party incurred after time of contract up to the time
         of the breach—any loss avoided. (Should have used in Chicago Club Coll v. Dempsey)
         Restitution Interest Damages (take away any benefit received)-Restatement § 371-The courts
         use this to prevent unjust enrichment
                       Regular would be Bush v. Canfield (want money paid back even if you saved me
                          from a loss
                       To the party in breach (Vines v. Orchard Hills) if what was paid is more than the
                          total of expectation damages you get the difference back
                       Quasi Contract (contan v. wisdom)
  Potential Inclusion in Damages
          Consequential- foreseeable part of contract (must have been foreseeable at the time of
          Incidental damages-Cost incurred due to the breach including cost of cover
          Buyers Damages for Repudiation/non delivery (UCC § 2-713) (Tongish v Thomas) to get the
          profits the Δ made because he sold contracted goods at higher price (plus regular damages) the
          π has to prove
     You had a contract
     Δ was the seller, π was the buyer
     Δ breached
     Market price at the time of the breach.
  Limitations on Damages:
         The Δ will raise to lower damages
         Remoteness or Foreseeability at the time of contracting-(Hadley v. Baxendale)-restatement §
         351-damages are not recoverable if the Δ had no reason to foresee at the time of the contract
         (special damages require special notice)
         Certainty of Harm-(Chicago Club v. Dempsey)-Restatement § 352-damages are not recoverable
         if they cannot be established with reasonable certainty. Would be a good time to use Reliance
         damages instead because they would not be subject to this).
         Avoidability of Harm-(Rockingham County v. Luten Bridge Co.)-Restatement § 350 Damages that
         could have been avoided will not be recovered unless the π made a reasonable attempt to
         mitigate them.
                                Very hard to enforce mitigation in personal service contracts (McLaine
                                In terms of goods, if you have an unlimited supply and the breach and
                                  resale cost you a sale then you don’t have to count the resale as
                                  mitigation(neri v retail marine corps)
     Express Limitations on damages
          Contracting around the default rules of damages
          UCC § 2-719 you can change the amount of damages available in a contract (eliminating special
          damages or adding attorney’s fees). Another option is liquidated damages clause.
     Liquidated Damages Clause
          Restatement § 356 states that reasonable liquidated damages may be stated in a contract.
          Punitive Damages are not allowed in a contract action (unless as a separate tort). Unreasonably
          high liquidated damages will be considered penalty damages and will be voided.
     Specific Performance
          Land contracts-SP for land contracts should be the default remedy (loveless v. Diehl)
          Personal Service Contracts-SP will not be given as a remedy in Service contracts (Lumley v Gye)
          however injunctions may be given
          Goods-UCC § 2-716-SP may be ordered in certain circumstances
                       Expensive/hard to replace goods
                       They are your goods(replevin)

          You can sue person who knowingly interferes with your contract with someone else
                  Know of the facts that the courts would define as a contract (know a
                  deal was in the works) need not be accurate
                  Usually along with related contract injury
                          Restatement (Second) of TORTS § 766A 3rd part is liable if they
                          intentionally and improperly get you to breach contract

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