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Contracts
Rutgers University, Newark School of Law
Kettle, John R.

Contracts

Fall 2014

Professor John Kettle

I. Contract as legally binding agreement

a. Contract is binding once the exchange is made.

b. Contract law is different that criminal and tort law.

i. No legally binding duties other than anything contracted.

ii. First question to ask is “Was there a contract between the parties?”

iii. Legal duty comes into existence when parties start with no contractual obligations to one another, then at some point in time they do something that creates a legal obligation.

c. Definition of Contract

i. A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.

1. Use the word “promise” loosely. As society changes, so do the terms and motions of the word promise (handshake, cross my heart hope to die, other culture submissions into promises)

2. Implicit action may also count as a contract

a. A asks for bag of flour, and implicitly promises that he will pay for it (even if A hasn’t said so outright).

ii. A contract doesn’t need to be a written document.

1. The writing is a physical thing, the contract is that physical thing’s legal effect.

2. A written contract may not represent the entire contract between both parties (keep that in mind).

3. Although contract is the product of agreement, a contract is not simply what the parties have agreed to.

d. Who Contracts?

i. With a few exceptions, U.S. law of contract doesn’t provide different rules for different sorts of parties.

ii. Four categories of contracts:

1. Firm sells to Firm

2. Individual sells to Individual

a. Primarily regulated by family law, real property law.

3. Firm sells to Individual

a. Primarily regulated by consumer protection law, leases, securities law.

4. Individual sells to Firm

a. Regulated by laws governing the employment relation.

iii. Commonly known contract law is usually used for contracts between two firms (a corporation or other legal entity).

1. Firms are less likely to be prey to cognitive error, firms are more often legally sophisticated, firms are subject to other forms of legal regulation, and firms are designed with a single goal in mind: maximizing profits for their shareholders. (TB pg. 4).

e. Questions to always keep in mind

i. Which promises will be enforced?

ii. When enforceable, what is the scope and content of a promissory obligation?

iii. How will these promises be enforced?

iv. Which of the foregoing answers can the parties contract around (and how?)

II. Sources of Contract Law

a. The Common Law of Contract

i. Most contracts in US are governed by state law

1. Almost all of these different bodies of law spring from the English Common Law (except Louisiana whose contract law derives from the French Civil Code)

ii. General law of contract in the US is a product of judicial decisions in individual cases.

iii. The restatement of contracts

1. Arthur Corbin and the American Law Institute was to restate the law as it is, not make new laws (First Restatement).

2. Systematically restated the prevailing law of contract in the United States.

III. Law and Equity in Contract

a. Distinction between law and Equity

i. In English law, there exists to courts: The courts of law and the courts of chancery.

1. Courts of law upheld the king’s law and was governed by generally applicable rules laid down by earlier judicial decisions.

2. Court of Chancery was the court of equity. It empowered to dispense justice where the relief available in courts of law

a. i.e. statute of frauds, you can find it in the UCC.

XIII. Output contracts vs. Requirement contracts

a. The buyer is entitled to the entire output of the seller. Whatever the output is, they have to buy it. Seller has to sell all of it.

b. The buyer is entitled to buy whatever requirement was contracted, and the seller has to sell it.

XIV. When talking about service, look to Restatement. When talking about goods, look to UCC.

XV. Illusory Contract

a. When one person has the power to perform or not perform a duty in a contract. There is a condition that is completely in control of the parties. This is not enforceable.

XVI. Option Agreement /Contract

a. Freezes offeror from offering during the option period. Exclusive option to reject or accept is given solely to the person who froze the offer.

b. Partial Performance can create an option agreement. It creates a unilateral contract.

XVII. Unilateral contracts, offerors are frozen once an offeree starts performance of the act (Partial performance is the equivalent of an option contract). Can the offeree stop performance before completing it? Yes, because they don’t have to exercise their option. But, most of the time, it depends on the circumstances.

XVIII. Courts don’t look at the adequacy of a contract unless there was fraud.

XIX. Quantum Meruit

a. Another way to say there was unjust enrichment through a quasi contract.

b. Lefkowitz v. Great Minneapolis Surplus Store.