CONTRACTS

STEP # 1 DO WE HAVE AN OFFER

I. Objective Approach (vs. Subjective)a. Lucy v Zimmer – Whether the Zimmer’s agree to sell farmland to Lucy? How would a

reasonable person interpret what was being said; In the mainstream courts take an objective approach

b. Determining an agreementi. Initial Communication – first comm., letter, email, contact

1. Was this first communication an Offer - a manifestation of commitment? One person will have made some kind of a commitment

a. Look to Content of Communication; what was saidb. Not necessary that all terms of the deal be spelled out; Missing terms are

okayc. Watch for anything that is important but vague and ambiguous

i. Example: Law firm says be a law clerk for 9 wks and we’ll pay you a “fair” salary

ii. *Fair, Appropriate, Reasonable (These kind of vague expressions are not sufficiently specific and too vague to be enforced)

iii. *Requirements Contracts – the commitment of exclusivity1. “Only From You”2. “Solely”3. “All” from

2. What was the Context of the first communication?a. Advertisements are not offers; they are invitations to make offers

i. Example: Ad in the paper to sell car for $2K, you show up and you are then making the offer

3. What happens after the offer?a. Offers die with the personb. Offers do not last forever (must respond within a reasonable time)

i. Example: The person has taken too long to respond

c. *Revocation – person who has made the offer (offeror) unambiguously changes their mind and revokes offer

i. The offerror must unambiguously indicate they have changed their mind

ii. It must be communicated to the offeree 1. Can be by words or conduct

d. Exceptions to Revocationi. Option – Offer plus a paid for promise not to revoke; to hold the

offer open1. Example – if you pay $X, I’ll hold the widget for you for Y

days; offer cannot be brokenii. Firm offer Rule – only applies where seller is a merchant

1. Sale of Goods2. Business Person/ Merchant3. In Writing

a. Ex: I explicitly promise you (in writing) you can buy this car for the next 3 days

iii. Where the offer has been relied on in a way that is reasonably foreseeable [Reliance]

1. If the person has reasonably relied on your offer, that offer cannot be revoked; i.e. Contractor

iv. Unilateral Contract – A contract that results from an Offer requiring completion of performance as acceptance; The contract is not actually existing until after it actual happens (and is finished)

1. If there has been a unilateral contract and the performance has begun

STEP #2 DO WE HAVE ACCEPTANCE?

c. Is it Acceptance?i. Look at the offer before the response – When you make an offer you can control how it

can be accepted; Example: By mail, but reasonable under the facts (not stocks by mail)ii. Most of the time the method of making the acceptance is not spelled out and is to be

reasonable1. *Mail Box Rule – 1) two people trying to make a deal at a distance 2) They’re

technologically challenged (methods of comm. involve delays ) 3) Communications are inconsistent – so when did one comm. become legally important?)

a. Most communications are legally effective only when receivedb. Acceptances are effective when sent

iii. When do you have to give notice?1. Where performance is the acceptance just use common sense

d. Is it Rejection?i. Indirect rejection

1. Counter-offersa. Exp. Sell’s Caddy for $300, but you’ll only pay $400 (is a counter offer

and counter offers operate as rejections)b. This has the effect of terminating the offer.

2. Conditional Acceptancea. usually appears with words “I accept…on the condition that” (This is a

rejection-indirect of the offer)b. “if,” “provided,” “so long as” (These are terms of rejection)

3. Mirror Image Rule – (NOT Sales of Goods) Common Law Contracts Onlya. At Common Law in order for an acceptance to be valid it must be exactly

like the originalb. Common Law does not allow for additions, deletions, or changesc. Article II Uniform Commercial Code – (UCC 2-207)

i. Sale of Goodsii. Two Communications (different)

1. You’ll be given info about the first comm2. And info about a later comm. (two communications which

arise in the bargaining for a sale of goods)a. First is the offerb. Then the responsec. Or, there could be a statement of agreement

d. And then second a confirmation of the agreement + something added or deleted

iii. Is there a Contract?iv. Is the new term a part of the contract?

STEP # 3 IS THERE CONSIDERATION?

e. Is there Consideration? i. A device the law created that merit enforceability by the court and those that do not –

*bargained for* detrimentii. Who is the promise breaker? (One person at a time makes consideration)

iii. Did that promise breaker ask for anything in exchange for her promise1. Hanger v Sidway – If you refrain from drinking, smoking, etc until reached

certain age 21 then I will pay you grandson; Enforceable because there is consideration to detriment, this is not just a gift

2. Consideration questions typically involve doing what you’re supposed to or not; forbearance

a. Past Considerationi. You cannot bargain for something that has already happened; if

someone has gotten hurt, you can’t promise to pay somebody who’s taken care of them

b. Pre-existing Legal Dutyi. Simply doing something you’re already legally obligated to do is

not legal consideration to promise to pay more ii. Under Common Law you need new consideration for Contract

Modification; not the case under UCC 2, if it is a sale of goods you don’t need consideration

f. Is there some reason this agreement is not legally enforceable?i. *Statute of Frauds is the #1 Reason on Law Exam (Largely ORAL

AGREEMENTS)1. Statue to defer fraud because we’re concerned that plaintiffs are going to come to

court and allege the existence of a contract that never actually existed; The state would then be participatory in the fraud.

2. It is not a part of every contract; Three are within the Statute of Fraudsa. Transfer of an Interest in Real-estate

i. Exception (leases < 1 year in length; like yours) b. *Services Contract and no way capable (theoretically possible with

unlimited resources) to finish it in one yeari. i.e. – a three year employment contract

ii. i.e. – I offer you a job and you are to start work three months from now (case). Calendar starts running from the date of the contract and you look at when it can actually be completed; if not in a year, then statute of frauds (concert contract for concert more than a year away).

c. A sale of goods of $500 or mored. Typically there is a written agreement to satisfy the Statute of Frauds

i. “Oral” SoFii. “There was a written agreement” ; alone no SoF

1. But information says that there is potential for SoF

2. Is it missing signature of defendant against whom you are trying to enforce the agreement? Is it defective? Are there problems with it?

e. The All Material Terms Test (Who and What)i. Need to be able to tell from the agreement who the parties are and

what they were trying to do f. UCC 2 (Sale of Goods greater than $500)

i. Unlike in Services, here with the sale of goods the writing must say how many? “I agree to buy 200 widgets, signed ~D”

ii. Only needs to be signed by the Defendant, but where both are merchants the plaintiff signature suffices because a reasonable business person that receives such a letter and believed that no agreement was made it would be responded to

STEP #4 ENFORCEABILITY

II. Is the Contract Unenforceable?

a. *Reliancei. Promissory Estoppel (Restatement II Sec. 90) – a substitute for consideration

1. Promise2. Justifiable reliance3. Would be unjust not to enforce promise (because it was reasonable)

ii. Is reliance a substitute for writing? 1. I.e.: offer to sell my ’73 Caddy but nothing is in writing; and in reliance you build

a garage; is the statute of frauds satisfied?2. Restatement: Reliance can substitute for writing (not widely adopted)

b. Capacity

c. Duress i. Physical

ii. Economic1. P made an improper threat (bad conduct) [to breach an existing contract]2. Must have acted with no reasonable alternative

d. Misrepresentation i. Before the agreement is entered into, one of the parties tells the other something that is

not true; Untrue statement prior to the agreementii. Untrue statement was relied on in entering into the agreement

iii. Identify: It makes the agreement unenforceable and is a basis for recisioniv. Even honest innocent misrepresentations matter

1. One who truly honestly believes something is true tells you this and it’s false (cow case)

v. Law of Non-Disclosure – when two people make a contract, neither one has a duty to tell the other party what they know (coal-selling case)

e. Mistake i. When are we handling the law of Mistake vs Misrepresentation?

1. One person on their own 2. Sherwood v Walker – both buyer and seller though the cow was barren, because

they were looking for a beef cow vs breeding cow.

3. (Chicken Case) ii. If both parties were mistaken (mutual mistake of material fact) and the mistake related to

something important; was material – a mistake about the very nature of something1. No Contract segun Restatment

iii. Emerging Viewpoint – Is this a risk that the law should place on one of the parties; 1. Enforceable

f. Ambiguity i. All about Contract terms

ii. In order for an agreement to be unenforceable by ambiguity, you need:1. Term that has at least 2 meanings2. Each party has different meanings in mind3. Neither party has reason to know of the ambiguity4. Raffles v. Wichelhaus – two ships are named “Peerless” and the ships both sail

from India; P wants cotton from the one and he gets cotton from the other (later and when the price of cotton had gone down)

g. Public Policy i. Exculpatory Contracts – A party is trying to contract away any liability for their torts

1. You CANNOT contract away liability for intentional torts or gross negligence2. Regular negligence?

a. Context-based analysis: ski resort, parking garage ok, Non-compete clauses (never enforceable in CA) Reasonable Business Need?

b. Non-compete needs to be in a reasonable geographic area

h. Unconscionability i. While there is a 2 UCC provision on unscn. It is also in Common Law

ii. In most jurisdictions we talk about procedural and substantive unscn.1. Procedural – problems with the agreement process

a. i.e. fine print for an 90 yr old, legalize for a non-English speaker)b. UNFAIR SURPRISE

2. Substantivea. OPPRESSIVE TERMS

iii. Arises often (in law school exam) as a business on one hand and an individual on the other

III. What are the terms of the agreement?

a. UCC 2-207 (1) Are additional terms a part of the contract?i. If either person is not a merchant (two individuals) and a response is made with

additional term, that additional term is not a part of the contractii. If they are merchants then it is if it is not objected to

b. Parole Evidence Rule i. If you and I have a final written agreement of a deal it is a more reliable indication of

what we intend than anything done prior1. The question goes to whether the evidence can be admitted for the judge to hear

ii. If there is a writing that the court concludes is the final agreement, then any prior writing cannot be admitted subject to exceptions

iii. Integrated Writing – the final agreement (always in writing) but not every writing is an integration; the parties must have intended that the writing in question was the final agreement and you cannot introduce evidence therein to contradict.

1. Cannot use evidence of what might have been agreed to before the final writing2. Can be used to explain ambiguous terms in an agreement. (so long as it does not

contradict the final writing)a. Frigaliment Importing Co. v. B.N.S. International Sales Corp – fryer

chickens or boiler chickens? What did you mean with the word chicken?3. Can be considered to add terms unless the court finds that the writing is not just

an integration, but is a complete and final integrationa. Merger Clause – “This is the complete and final agreement” (persuasive

but not controlling

c. Implied Warranty of Merchantabilityi. Arises in the context of the sale of goods where the seller is one who sells goods of this

kind [merchant] and it adds a term to the sale of contract of this good, “must be fit for this purpose”

IV. Looking at the fact pattern, did each person do what they had promised to do?

V. Is there any Excuse for not doing what you agreed to do?a. Did something happen after the agreement was entered into that would excuse the party that

didn’t do what they should?b. Improper Performance excuses the other party from performing where there has been

material breachi. Material Breach – Excuses the other party from performing limited to Common Law

contracts1. i.e. I contract you to pay to paint house interior; you paint all but a closet and

leave the paint; I pay $25 to have another finish the close; this is not material so you are not excuse (just get damages per the amount paid to the other)

ii. The perfect tender rule is on a sale of goods

c. Anticipatory Repudiationi. Where one of the two contracting parties unambiguously indicates that they unable or

unwilling to perform1. i.e. , painter begins to paint but homeowner indicates won’t pay half way through

ii. If it is a sale of goods; “Reasonable grounds for Insecurity”1. Under UCC I have given you reasonable ground for insecurity if the party has

performed poorly of the duties within the agreement; party can get adequate assurance of future performance; prospectively

d. Law of Conditionsi. i.e. Enter into a contract to buy a house but your obligation to buy th house depends on

the house being valued at $250K; Appraiser comes and appraises at $245K, must you buy? NO, you have an excuse (The non-occurrence of a condition)

1. The law of condition on an exam means that there must be language in the contract itself that create this condition that somehow modify your obligation to buy the house

2. It is important to identify language of condition because language of express condition must be complied with

3. The legal significance of condition is simply an excuseii. Jacob and Young v Kent – K says you must use Redding Copper Pipe; Contractor uses

Ko-Ho; buyer says I shouldn’t have to buy; this is not material because it is still copper. You still should buy;

1. Dicta – if the buyer really had wanted Redding Copper Pipe he could have protected himself with conditional language. “The homebuyer’s obligation to purchase the house is conditioned upon all piping being Redding Co. piping.

iii. If something is really important to you, you should put it in conditional language.

e. Impossibilityi. After the contract is entered into, something happens and it was not anticipated within the

contract that affects one person’s ability to perform.1. Taylor v Caldwell – Concert hall and promoter agree he wants it for three nights

in July; in late June it burns down; Promoter sues Concert hall owner for breach of contract. Held: Where there is a later post contract occurrence that affects the ability to perform then non-performance will be excused

a. On the other hand if an occurrence takes place that makes performance more expensive, there is no excuse

f. Frustration of Purposei. Occurrence that does not affect the ability to perform but the mutual purpose therefor

1. Coronation Parade Case – the coronation was canceled because of influenza but the apartment to be rented was of high rent and now nothing was going to happen; individual was excused of performing

VI. What are the consequences for not doing what you agreed to do? Contract remedies?a. Specific Performance at Equity

i. Typical Answer is that specific performance is not an appropriate remedy here1. Side note (Church’s court at Equity; King’s Court at Law)

ii. No specific performance for a services contract, ever!iii. UCC Specific Performance is available where the goods are uniqueiv. Real Estate is always unique therefor specific performance can be granted

b. Money Damagesi. Punitive Damages – they are not available generally (no punishment allowed)

ii. Liquidated Damages – a fact pattern in which if there is a breech the damages shall be $X dollars …perhaps for every Y number of days not performed (often tantamount to punishment) Is it compensatory or punitive? If punitive not allowed

iii. The purpose of contract law is to compensate

iv. Expectation/Expectancy Damages – The General measure of money damages is protecting the non-breeching party’s (plaintiff) monetary expectations .

1. When people make a contract each is expecting no breech. What would have been the position of the plaintiff if there had been no breech?

2. What would be the dollar consequences of the breech?3. Dollar consequences comparing the two circumstances

v. Hawkins v McGee – the doctor promised Mr. Hawkins 100% perfect hands, and doctor wanted to perform plastic surgery, skin graph and the procedures fail and the skin was from chest. What was the measure of George’s damages?

1. Dollar consequences of no breech compared with the dollar consequences of breech

vi. Consequential (Special) Damages 1. The exam hypo must tell you something significant about the plaintiff

2. The other person must know about this special circumstance concerning the plaintiff

3. Hadley v Baxendale – Mill in England and the owner has a broken mill shaft, and her mill is closed; The mill owner contracts with common carrier to deliver broken shaft and the common carrier breaches

4. Special factor causes special loss, but are only recoverable if foreseeable by the other party at the time of contracting

vii. Avoidancy [avoidable] Damages1. Aggravating circumstances

a. Stop Workb. Won’t take on New Work

2. Taking a job; should be equivalent (Movie Case)

VII. The impact on third parties (Third Party Beneficiary Law)a. Two people make an agreement with the understanding that it is to benefit a third personb. Third Party can enforce the promise against Promisor

i. Life Insurance Co. – legal obligation to pay the benefits to beneficiary1. Promisor (Insurer); Promisee (the Insuree) Beneficiary (Insured)2. Lawrence v Fox – Holly owed money to Lawrence, fox borrowed money from

Lawrence; H says to F pay L because I owe L. He does not; Can L sue F; YES!c. Can you get out of these agreements? Yes, unless the contract says otherwised. Where the beneficiary knows of the contract for their benefit and the beneficiary takes action in

reliance thereupon.

VIII. Assignmenta. Transferal of contract rights to 3rd party under a contractb. Intended 3rd party beneficiary will be named on a law school exam in the K

i. Make the Contract ii. One person then Transfers Rights to the Third Party

iii. Here, no consideration necessary

IX. Delegationa. Transfers of the duties to a 3rd party under a contract

i. Duties which arise with respect to delegation includes the fact that Contract Duties Generally can be Delegated

ii. This is because the Delegating Party remains Liableiii. If your contract provides duties cannot be delegated then you cannot