Contracts I Outline
Professor David Levine
Elon University School of Law
a. Contract: 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
i. Elements: Offer, Acceptance, Consideration
ii. Exchange relationship created by an agreement between two or more parties, containing at least one promise and recognized as enforceable by law
b. What Makes an Agreement into a Contract
i. Exchange relationship: a relationship exists in which the parties commit themselves to each other for a common enterprise. The purpose is an exchange—each party gives up something to get something else
ii. Created by agreement: both parties must willingly consent
iii. Containing at Least One Promise: at least one of the parties must have made a promise—committed to do something or refrain from doing something in the future
iv. Recognized as enforceable by law
c. Cohen v. Cowles Media Co.
i. C was a political activist who offered info about a candidate to CM in exchange for confidentiality. CM released C’s name to the public because the info sucked.
ii. Rule: If the parties do not intend a contract, then there is no contract.
iii. We learn
1. Not every promise has a legal remedy
2. A moral obligation, by itself, does not hold an enforceable contract
3. Without a legal remedy, the promise does not have legal consequence
i. Specific Performance – requiring breaching party to perform
1. Not the preferred remedy
ii. Monetary Compensation (Damages) – compensation to restore the financial advantage that had been lost
1. Preferred remedy
2. More meaningful and less burdensome means of rectifying breach
3. Expectation damages: difference between what the plaintiff contracted for and what plaintiff actually got
e. Kilarjian v. Vastola
i. K wanted to buy V’s house. Day before closing, V said they would not sell. V had serious illness and moving would be hardship. Court refused specific performance
ii. Rule: specific performance is appropriate in situations of the sale of land as long as the order for such performance does not require undue hardships to the defendant.
f. Expectation damages – looks to award plaintiff the sum of money that will compensate him for loss of the economic benefit that he reasonably expected from the promise
i. Puts the suffering party in the economic position it would have been in if the breach had not occurred
ii. Usually equal to the extra cost of entering into a new transaction for a similar performance
II. Sale of Goods
a. Uniform Commercial Code: statutory provisions, some of which govern contracts. Only law when it is adopted by a state
i. Article I: general provisions that apply to all UCC transactions
ii. Article II: sale of goods
1. Art. 2 > CL: If Art. 2 is inconsistent with common law, UCC prevails.
iii. Sale is defined by the UCC art. 2 as when a “title to goods passes from the seller to the buyer for a price”
iv. Goods is defined by UCC art. 2 as all things movable
b. Pass v. Shelby Aviation
i. P’s were killed in plane crash. Executor sued SA claiming that they serviced the plane before the crash and had ordered and installed bad parts. Claim under warranty of UCC art. 2. Court denied because the interaction was primarily for goods, not services.
1. Gravamen test: looks to that portion of the transaction upon which the complaint is based to determine if it involved goods or services.
2. Predominant Purpose test: looks at the transaction as a whole to determine whether its predominant purpose was for the (1) sale of goods or for (2) the provision of a service
a. What do we look at to determine b/w (1) and (2)
i. Language of k
ii. Nature of the business of supplier of the goods or services
iii. Reasons the parties entered the k
iv. Respective amounts charged under the k for goods and services
iii. Application: court ruled this was primarily a contract for services rather than for goods. UCC protects sales of goods, not provision of services, so UCC does not provide protection for Mr. Pass. Judgment for SA.
a. Contracts may include a mix of goods and services
b. Predominant purpose test applies to determine whether a mixed contract is governed by UCC
c. Merchant: a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out to having such knowledge
i. Buying and selling goods
ii. Represents expertise relating to the goods sold or the practices of transaction
iii. Agent by occupation who should possess knowledge and skill
III. Mutual Assent – goal is to have a “meeting of the minds”
a. Objective test – Assent is decided by evidence of outward manifestations of intent rather than the subjective state of mind of the actor. Perspective of reasonable person.
i. A contract will bind a man so long as his actions showed that he intended to enter into the contract
ii. The law has nothing to do with the actual state of the parties’ mind. Instead, it must go by externals, and must judge parties by their conduct
1. Pepsi made a TV ad for PepsiStuff. People could drink Pepsi to earn points towards things in the catalogue. TV ad included a harrier jet for 7,000,000 points made in jest. L believed ad and sent check for $700,000 and 15 PP to purchase jet. Court found that a reasonable person would have understood the commercial to be a joke.
2. Rule: Whether an objective, reasonable person would have understood the commercial to convey a serious offer. An obvious joke would not give rise to a contract.
a. We are protecting the reasonable person’s expectations
a. Definition – Rstmt §24
i. Manifestation of willingness to enter into a bargain
ii. so made as to justify another person in understanding that his assent to that bargain is invited
iii. and will conclude it
b. Policy goal: to protect the recipient’s reasonable expectations of the offeror’s manifestations
c. Rule of Interpretation – documents are interpreted by their plain language, not usage by a trade or trade specific jargon
d. Price quotes – generally are not firm offers
e. Fletcher-Harlee Corp v. Pote Contractors
i. FH is a general contractor soliciting bids from sub contractors. It is industry custom that submissions from subs are firm offers. P submitted a written price quote, but explicitly said it was for informational purposes only, not a firm offer. FH took P’s bid, but P raised the price. FH had to use different contractor for more money. Court found that there was no offer because there was no willingness to bargain.
ii. Rule: Manifestation of willingness to enter into a bargain
iii. Lessons – Pote never intended price quote to be an offer
1. Price quotes are normally not offers
2. The plain meaning of the k trumps custom of trade
3. Legal outcome depends on which communication was the offer
a. Did the offer come from the bid? The price quote? etc.
f. Babcock & Wilcox Co. v. Hitachi America
i. B&W contracted H to design and supply emissions reduction system. Both parties agree that there was a k, but time of offer is disputed. H says price quote was the offer, but B&W says purchase was the offer. Court found B&W’s purchase order constituted an offer, which Hitachi accepted by shipping the goods.
ii. Rule: generally a price quote is not an offer
1. an offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to bargain is invited and will conclude it.