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					Contract Law
          Definition of Contract

 Definition (from Restatement (Second) of
  Contracts § 1)
   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 as a duty.
   A promise is a commitment or an undertaking that
    some event will or will not occur in the future. A
    promise may be made by using express words or it
    may be implied from conduct or some combination of
    words and conduct.
  Bilateral and Unilateral Contracts

 Two types of Contracts—bilateral and unilateral
   A bilateral contract is one in which each party
    makes a promise of future performance.
      A promises to deliver his cow and B promises to pay $100
   A unilateral contract is one in which acceptance of
    the contract happens through performance.
      A promises to pay $100 to the first person who finds his lost
       cow.
         Elements of a Contract

For a contract to be legally enforceable the
 following elements must be present.
     Offer
     Acceptance
     Consideration
     Capable parties
     Legal subject matter.
                The Offer

An offer is a communication that creates in
 the offeree the power to form a contract by
 an appropriate acceptance.
It must be a manifestation of willingness to
 enter into a bargain so made as to justify
 another person in understanding that his
 assent to that bargain is invited and will
 conclude it.
      Intent to be Presently Bound
 The first element of an offer is a communication
  of an intent to be presently bound.
 One key issue is whether statements were an
  invitation to open negotiations or a present offer.
 Hypotheticals:
    Are you interested in buying my car for $500?
    Will you buy my car for $500?
    I will sell you my car for $500?
         Objective v. Subjective Intent
                     Rules
 Whether an offer has been made is based on objective
  statement of intent regardless of subjective intent.
 If an objective person would have believed an offer was
  being made, it can be accepted.
 However, if both parties understood that no offer was
  being made, then no contract regardless of objective
  statements.
 If both parties understand that their words are not
  intended to form a contract, then no contract
 Purpose of contract law is to protect reasonable
  expectations of the parties. If neither believed there was
  a contract, no K.
     Agreements to be Put in Writing
1.   A sells bricks. B builds retaining walls and needs
     bricks for a job he is doing. A offers to sell B a ton of
     bricks for $1000 and B accepts and says “I’ll send over
     a written contract for you to sign”. Before the contact
     is signed, A decides he wants to raise the price and
     tries to back out.
2.   Same, but they have done business in the past and
     always have a written contract.
3.   Same, but the standard practice in the business
     community is not to have a written contract
4.   Other facts that would be helpful?
 Agreements That Contemplate A Future
               Writing
 It is common that people will reach an oral
  agreement but plan to reduce the agreement to
  writing.
 Issue: Is there a contract before the formal
  signed written document.
 Answer: It depends on the intent of the parties.
   If they intended to be presently bound, then a K even
    before written memorialization.
   If they intended that important terms be worked out in
    the written agreement and no K until signed, then no
    oral K.
                       Definiteness
 An offer must be sufficiently definite as to terms that a
  contract can be completed with acceptance (or it allows
  the acceptor to specify the missing terms)
 General Rule: To have an enforceable contract, the
  parties must manifest their assent to a bargain that is
  sufficiently definite and certain to enable a court to
  determine what the respective rights and obligations of
  the parties are.
 It is the contract, not the offer that must be certain.
    So, if offer to sell either Horse A or Horse B for $100, the
     acceptance provides the certainty.
              Missing Terms
Courts will supply missing terms if it is
 clear that their was an intent to be bound.
  Thus, if no time specified, court will often
   imply a reasonable time.
  Even price can be supplied. Price will be
   reasonable price.
  Courts will look to the course of performance
   to determine missing terms if the contract has
   already started.
                Advertisements
 Generally an advertisement is not an offer that
  can be accepted without further consent by the
  seller because quantity isn’t specified and it is
  assumed to be limited to those available.
 If advertisement is specific enough it can be an
  offer, but usually not.
 How to protect consumers from abuse by
  advertisers?
    Consumer protection laws prevent abuse of this, but
     not contract law.
                  Rewards

Hypo: “$100 Reward to anyone who finds
 my lost puppy, “Barfy”. Offer that can be
 accepted to create a contract.
 Usually do create an offer if the conditions
 to fulfill the offer are specific and can only
 be fulfilled by one person. Lost Dog, etc.
Acceptance is accomplished through
 performance. Finding the dog. Is only
 one Barfy and only one person can fulfill.
         Meeting of the Minds

It is essential to a bargain that each party
 “accepts” an offer from the other.
Thus, must know of an offer to “accept” it.
Contract law is primarily concerned with
 protecting reasonable expectations
 created by the promises of others. Thus, if
 not aware of promise, can’t rely on it.
         Assignment of offer

 General Rule: Offer can only be accepted
 by the intended recipient.
If O offers to pay X $20 to mow his lawn
 and Y discovers the offer, Y can’t accept
 and form a contract.
     Time for Acceptance and Option
                Contracts
 Time for acceptance: The offer only stays
  open as long as the offeror wants it to.
   Can revoke the offer at any time. If no time specified,
    is a reasonable time.
 Option contracts—Can make a separate
  contract to make the offer exclusive and to hold
  it open for a period of time.
   One might get an option on a piece of property and
    pay 3% of purchase price for the exclusive right to
    buy for the next 12 months.
                   Hypotheticals
1.   A offers to sell Trigger to B for $100. The next day, A
     sends a letter to B revoking the offer. Before the
     revocation arrives, B calls and accepts the offer.
     Contract?
2.   A offers to sell Trigger to B for $100. B says, “I’ll buy
     for $80”. A says “no”. B then accepts the offer at
     $100. Contract?
3.   A calls B and leaves a message saying that if B will go
     to A’s grandmothers house and mow the lawn, A will
     pay him $50. B goes and starts to mow the lawn but
     doesn’t tell A he has accepted. When he is half way
     done, A call B’s cell phone and tells him the offer is
     revoked.
  Rejection Of An Offer Terminates The
                  Offer
Can’t reject and then later accept.
 Attempted acceptance is a new offer that
 must be accepted by original offeree.
Offer is terminated by a counter-offer
Terminated by revocation of offer.
 Revocation is only effective upon receipt
Also terminated by communication that is
 inconsistent with the offer being open.
 Revocation of a Unilateral Contract

A contract that is accepted by
 performance, such as a reward contract
 can’t be revoked once performance has
 started, unless give a reasonable time to
 fulfill.
      Acceptance—General Rule
 The offeror as the creator of the power of
  acceptance has the right to dictate not only the
  terms of any resulting contract, but also the
  manor of, and medium by which, the offeree can
  exercise the power of acceptance.
 Manner of acceptance: This means that the
  offer defines how acceptance will occur and
  whether the contract is bilateral or unilateral.
 Means of acceptance: Whether has to be in
  writing, by phone, etc.
         Acceptance-Modern Rule
 Offers that unambiguously communicate a requirement
  for a return promise will be treated as offers for a
  bilateral contract and a contract will result when the
  offeree complies by making a return promise
 Offers that unambiguously communicate a requirement
  for performance as acceptance will be treated as offers
  for unilateral contracts and will require acceptance by
  performance.
 Offers that do not clearly communicate what the offeror
  requires will be interpreted as empowering the offeree to
  accept in any reasonable manner as the offeree
  chooses.
 Acceptance by Exercise of Dominion or
               Control
 One who receives goods with knowledge or
  reason to know that they are being offered for a
  price is bound by the terms of the offer if he
  exercises dominion and control over them or
  does any act inconsistent with the offeror’s
  ownership of them.
 Most states have laws over-riding this to prevent
  stores from sending people unsolicited
  merchandise and then charging them, but rule
  still applies in other situations.
                Consideration
 A contract is different from a promise. A mere
  promise is not enforceable in most cases. A
  contract is.
 A contract requires that there be obligations
  running both directions. This is referred to as
  consideration.
   Basic rule is that each party to a contract must
    receive something or the promise of something for the
    contract to be binding.
   Put another way, each party must incur a legal
    detriment—give up something—in exchange for what
    they are receiving.
        Amount of Consideration
 Courts generally do not concern themselves with
  the amount of consideration.
   A promise to give a car for nothing is generally
    unenforceable
   a promise to sell the same car for $10 will be
    enforceable even if $10 is dramatically below fair
    market value.
 Consideration can’t be a sham.
   If promise to buy the same car in exchange for an old
    left shoe, the court would look through that and say
    that was not a real bargain.
         Must be a quid pro quo
 Each party must give a promise in exchange for
  the return promise.
 However, the law does not try to examine real
  motive. Will be an enforceable contract even if
  the consideration wasn’t the real motive for
  action.
 Consideration can be either a return promise
  (bilateral) or performance (unilateral)
   Digging a ditch
   Agreeing not to build a fence
   Agreeing not to compete with a business
          Preexisting Legal Duty
 Because consideration requires a legal
  detriment, promising to do something one is
  already required to do or forbearing from doing
  something one has no right to do does not
  provide consideration.
 Duty’s owned to third persons. The modern rule
  is that a promise to perform a duty or obligation
  already owed to someone else in return for
  additional consideration is enforceable.
  Promisor is incurring a new detriment because
  owes a duty to another person that can be
  enforced.
Unenforceable or Voidable Promises
 Rule: Certain promises are unenforceable or
  voidable. Examples are contracts made by
  minors or those who are mentally incapacitated.
  If a minor (M) enters into a contract to buy a car
  from S, S can’t enforced the contract against M
  because he did not have the legal capacity to
  enter into the contract.
 Problem: If M shows up with the money after
  the deal has been made, can S refuse to sell?
Unenforceable or Voidable Promises
 Answer: there is valid consideration that
  supports a contract. M’s promise to pay $1000
  creates a binding contract. M can enforce that
  contract and S can’t argue that he isn’t required
  to sell the car if M shows up with the money.
 Rule: Such contracts are voidable to protect
  those who lack capacity. It is not an excuse
  for those with capacity to breach a contract. In
  other words, a promise by a minor is not
  illusory and thus does act as consideration
  to bind the contract.
  Exclusive Contracts And Best Efforts

 Where one party contracts with another for the
  exclusive right to market or sell something for
  their mutual benefit, there is an implied
  obligation to use best efforts to make the
  contract beneficial. Thus, if
   Held: Is a breach of contract. Although there is
    nothing in the contract that says that P will make
    significant efforts to make the contract profitable, law
    implies an obligation to use best efforts.
 Consideration From Or To Third Parties

 Rule: There is no requirement that the
 return promise or performance which
 constitutes the bargained exchange must
 come from the promisee or that the return
 promise or performance been done for the
 promisor.
         Promissory Estoppel

Promissory Estoppel is a concept that
 allows for the enforcement of a promise
 that isn’t supported by consideration or
 even a bargain.
Is based on the fact that the promisee has
 foreseeably and materially changed his
 position in reliance on the promise.
Key concept is detrimental reliance.
               Promisory Estoppel
 Basic Rule: A promise
    which the promisor should reasonably expect to induce action or
     forbearance
    on the part of the promisee or a third person
    and which does induce such action or forbearance
    is binding if injustice can be avoided only by enforcement of the
     promise
 The remedy granted for breach may be limited as justice
  requires.
 The detrimental reliance required to enforce a promise
  must involve significant adverse consequences such that
  justice cries out for enforcement.
            Statute of Frauds
In the 1600s England passed a law
 requiring certain contracts to be in writing.
 As a result, all American states had similar
 laws. Although the rule has eroded over
 time, still exists in most states.
Rationale for the Rule?
What types of contracts should be in
 writing as a matter of law?
               Statute of Frauds
 In most states the statute requires the following
  to be in writing:
   Contracts that by their terms can’t be fulfilled within a
    year
   A special promise to answer for the debt of another
   An agreement made upon consideration of marriage
   An agreement for a lease for more than one year
   An agreement for the sale of land
   An agreement that by its terms is not to be performed
    during the lifetime of the promisor
            Statute of Frauds
The writing required does not have to be a
 formal contract. Need only be a writing
  Signed by the party to be charged
  Reasonably identifying that a contract has
   been made
  States with reasonable certainty the essential
   terms.
         Contract Interpretation
 General Rule: The primary concern of contract
  law is the protection of the reasonable
  expectations of persons who have become
  parties to the contract.
 There are two issues
   What does the contract say?
   What did the parties mean?
 Protecting reasonable expectations is easier
  said than done, because the court has to
  determine what expectations are reasonable.
        Contract Interpretation
 With oral contracts, contract interpretation is largely a
  question of fact for the jury.
    What did the parties say?
    What was it reasonable for them to understand under the
     circumstances?
 With written questions, contract interpretation is much
  more a question of law.
    The written contract gives us objective terms.
    Question becomes, what do these words mean as a matter
     of law.
    Note, that such a question can be examined fresh by the
     appellate courts.
                   General Rule
               Restatement Sect. 201
 1. Where the parties have attached the same meaning
  to a promise or agreement or a term thereof, it is
  interpreted in accordance with that meaning
 2. Where the parties have attached different meanings
  to a promise or agreement or a term, it is interpreted in
  accordance with the meaning attached by one of them if
  at the time the agreement was made
    A) that party did not know of any different meaning attached by
     the other, and the other knew the meaning attached by the first
     party. OR
    B) that party had no reason to know of any different meaning
     attached by the other, and the other had reason to know the
     meaning attached by the first party, or
 3. Except as stated in this section, neither party is
  bound by the meaning attached by the other, even
  though the result may be a failure of mutual assent.
    Interpreting Written Contracts
 rules for determining the reasonable
  interpretations
   Course of performance—what have these parties
    done in the past in regard to contracts of this type.
    Course of dealing—Similar to above. Evidence of
    their prior dealings with each other.
   Usage of Trade—what is the industry standard
    interpretation of a particular term. Community
    practice.
   Interpretation against drafter—The person who
    writes the contract has responsibility for making it
    clear. Any ambiguities will be charged against them.
             Extrinsic evidence
 Where there is a written contract, extrinsic
  evidence is ordinarily not admissible to prove the
  intent of the parties.
 It is assumed that the written agreement
  supersedes prior discussions or negotiations
  and reflects the intent of the parties.
 Exception exists where even applying rules of
  contract interpretation, the language is still
  ambiguous.
 But, have to try to resolve without extrinsic
  evidence, first.
          More Hypotheticals
B enters into a contract to buy a car from
 S. B is drunk and doesn’t know what he is
 doing.
Same, but B has schizophrenia.
                Contract Defenses
 Capacity to contract—It is assumed that adults have
  the capacity to form contracts. If evidence is offered to
  refute this assumption, it may establish total incapacity,
  in which case the contract is void.
 Infants and minors—Persons below the established
  age of majority are termed “infants” and their contracts
  are voidable (or in the case of very young, void)
    May be avoided either by guardian or by minor themselves
    Fact that minor misrepresented his age doesn’t matter in regards
     to the formation of a contract, but may give the other party right
     to restitution
    If minor comes of age after the contract was formed, can still be
     disavowed for a reasonable time. But acts that indicate an
     intention to affirm the contract will make it binding.
  Parties with Mental Defects or Illness

 Where a party to a contract lacks cognitive
  ability or understanding, the contract may be
  voidable without regard to whether the other
  party knew or had reason to know of the mental
  impairment. (Mental retardation, schizophrenia)
 Where a party has impaired motivational control,
  the contract is usually held to be voidable only if
  the other party knew or had reason to know of
  the mental impairment. (Alcoholism; manic
  depression)
                     Duress

 If an agreement is obtained by coercion which
  constitutes duress, the contract can be voided if
  the agreement is also unfair.
 Requires an improper threat of sufficient gravity
  to induce the other party to manifest assent to
  an agreement and assent must have been
  induced by this threat. I.e., no agreement if not
  for the duress.
   Must communicate an intention to cause harm or loss
    to the other party.
   Must threaten action that is unlawful or tortuous.
 Threat can either be express or implied.
                            Duress

 A threat is improper if the resulting exchange is not on
  fair terms, and
    The threatened act would harm the recipient and would not
     significantly benefit the party making the threat, or
    The effectiveness of the threat in inducing the manifestation of
     assent is significantly increased by prior unfair dealing by the
     party making the threat, or
    What is threatened is otherwise a use of power for illegitimate
     ends.
 If a party’s manifestation of assent is induced by an
  improper threat by the other party that leaves the victim
  no reasonable alternative, the contract is voidable by
  the victim.
               Undue Influence
 Undue influence may be available as a defense
  where a person entered into an unfair
  transaction induced by improper persuasion.
 Two Types
   Victim is prevented from exercising free choice due to
    the other party taking conscious advantage of a
    weakened mental state or condition of dependency.
   Breach of a fiduciary relationship which can exist
    despite the absence of any conscious wrongdoing.
            Undue Influence
           Weakened Capacity
The first type of undue influence is halfway
 between lack of capacity and duress.
Using a position of power over someone in
 a weakened or inferior position.
  Weakened state may not be enough to be
   incapacity and the behavior may not be
   enough to be duress, but when combined with
   an unfair bargain, they make the contract
   voidable.
                 Undue Influence
              Fiduciary Relationship
 Second type is premised on fiduciary relationship.
 Fiduciary relationship exists where one party occupies a
  position of trust and confidence with respect to the other.
  Intra-family, professional-client.
 Rule: If a contract between fiduciary and dependent is
  found to produce an unfair result for the dependent, it will
  be voidable even if no pressure or other wrongful
  behavior.
 Rat: Fiduciary has an obligation of utmost faith and fair
  dealing and can’t act in an adversarial way to dependent.
  Thus, not allowed to gain any advantage.
                            Mistake
 Mistake is only a defense under limited circumstances.
 For a mistake to get you out of a contract, must be a
  mistake as to a fact that exists, not a mistake about what
  will happen in the future. All bad contracts are a mistake
  in judgment.
 General Rule (Restatement. 152)
    Mistake must relate to facts that exist at the time the contract is
     made
    The mistake must relate to a basic assumption upon which the
     contract was made
    Mistake must have a material impact on the bargain
    The party seeking relief must not have assumed the risk of this
     mistake.
    Mistake was mutual
   Assuming The Risk Of Mistake

May occur because the contract assigns
 the risk of mistake to that party or puts the
 burden of investigating a matter on a
 party.
Law may allocate risk of mistake to one
 party because they came into the contract
 with limited knowledge, but didn’t make
 the necessary investigation.
            Unilateral Mistake

Must prove all of the elements of mutual
 mistake, plus prove either
  that the other party knew that you were under
   a mistaken belief, or
  the contract is so unfair under the
   circumstances that it shouldn’t be enforced.
Rule: a mistake can be so fundamental
 that there simply isn’t a contract because
 there was no agreement
      Events That Excuse Performance
               Impossibility
 It is hard to get out of contracts. Contract liability is strict
  liability. It is an accepted maxim that contracts are to be
  kept. The obligor is therefore liable in damages for
  breach of contract even if he is without fault and even if
  circumstances have made the contract more
  burdensome or less desirable than he had anticipated.
 Impossibility: Contract duties can be excused by the
  occurrence of an event if the contract was made on the
  basic assumption that this event would not occur.
  Events that excuse include those that make performance
  of the contract literally impossible or that make
  performance commercially impracticable.
    Events That Excuse Performance
             Impossibility
 Examples:
   Death or disability of one whose existence is
    necessary for the performance of the contract duty
   Destruction without the fault of the promisor of the
    subject matter of the contract or a thing necessary for
    the performance of the contract
   Supervening governmental action that prohibits or
    purports to prohibit the performance of the contract.
 The above do not excuse performance if it can
  be shown the party to be charged assumed the
  risk of performance becoming impossible.
 Does not excuse if performance can be
  accomplished in some other method.
                    Impracticability
 Mere impracticability will only excuse performance in
  very limited circumstances.
 Four basic elements must exist
    First, the occurrence of an event that has made performance
     impossible or impracticable.
       Death, fire, illness, crop failures, governmental regulations.
    Second, the event must have occurred without the fault of the
     party who seeks relief due to the occurrence of the event.
    Third, the nonoccurrence of the event must have been a basic
     assumption upon which the contract was made
    Fourth, whether the party seeking the relief has agreed to
     assume the risk of the event now asserted as a basis for
     discharge.
             Remedies and Damages
 Expectation Damages (Benefit of the Bargain). This is the most
  frequent and standard way of awarding damages. The idea is to
  place the innocent party in the position they would have been in had
  the contract been performed.
     Thus, if contracted to purchase 3 bales of wheat for $15 dollars a bale
      and cost of wheat goes up, so have to buy for $22, damages are $21.
 Duty to mitigate damages. Thus, if contract to Sell 3 bales of
  wheat for $20 a bale and the contract is breached, you can’t let the
  wheat rot and collect $60. Must try to find another buyer. Damages
  would be the difference in sale price. Thus, if can only sell for $17,
  damages are $9 plus out of pocked expenses in finding new buyer.
 Savings are deducted from damages. If B contracts to build a house
  for 175K and before he starts the Owner cancels the contract. B’s
  damages are 175K less the cost to build. If cost to build was $160K,
  damages are $15K
                       Damages
                     Foreseeability
 Only foreseeable damages can be recovered.
   General damages, those that naturally arise from breach of the
    contract of that type, are recoverable. Are presumed to be
    foreseeable because they are the natural damages from the
    breach of a contract of that type.
   Special Damages—Damages that arise as a consequence of
    special facts and circumstances relating to the specific
    transaction. Such damages are not ordinarily recoverable
    because they are not foreseeable.
   Rule: Special Damages can only be recovered if it is shown that
    they were within the contemplation of the breaching party at the
    time the contract was made.
   Many contracts expressly say that no liability for consequential
    damages, and these are generally enforceable even if breaching
    party was aware of consequential damages.
             Reliance Damages
 If expectation damages cannot be proven or
  have not been proven, the non-breaching party
  may recover reliance damages.
   Measured by the amount of money necessary to
    compensate the innocent party for expenses or loss
    incurred in reasonable reliance upon the contract that
    was breached.
 K to build a house. A breaches. B has incurred
  $4k in preparing to build the house. Can
  recover that amount in lieu of proving what profit
  would have been.
 Can’t exceed benefit of the bargain damages.
                  Restitution
 Recovery in restitution is designed to require the
  defendant to disgorge the money value of he
  benefit that the defendant received from partial
  performance of the contract.
 Not really damages.
 Designed to put the parties back in the position
  they were before the contract.
 Often used when found that there was not a
  valid contract, such as a voidable contract, or
  contract terminated due to mistake or
  impossibility.
            Stipulated damages

 If the parties put into the contract a provision
  stipulating what the damages will be paid if there
  is a breach, it will be enforced if not found to be
  invalid.
 Basic issue regarding validity is whether they are
  punitive or are simply an attempt to fix in
  advance the fair amount of damage.
 Penalty clauses will not be enforced.
  Specific Enforcement or Performance

 An order of the court requiring the breaching
  party to fulfill the contracts.
 Rarely available.
 Only able to get if there is no adequate way to
  compensate with money. Usually because the
  item or service is very unique and can’t be
  duplicated elsewhere.
   Sale of a unique parcel of land
   Replacement goods not available because of a
    shortage

				
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Description: Promisory Note Form document sample