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South Texas College of Law Houston
Kelso, R. Randall



South Texas College of Law Houston

Contracts Terms

Types of Contracts

—an agreement manifested by words.
—an agreement manifested by conduct.
(“quasi-contract”)—not a true K but an obligation imposed by a court despite the absence of a promise in order to avoid injustice.

Consideration: a bargained for exchange between parties.

There must be mutual inducement
be in the form of benefit to the promisor, detriment to the promisee, or mutual promises.

Breach: any non-performance of a contractual duty which has become due.
Waiver: intentional relinquishment of known right.

a waiver of material part of the agreed exchange is ineffective because it needs new considerations.

Nominal Consideration: consideration that is so inequitable that it cannot be said that one induced the other; given as a mere formality in order to create a binding K rather than as a bargained for exchange.
Promissory Estoppel: (R90) When a promisee forcible relies to his detriment on the promisor’s promise, even in the absence of an enforceable K, the doctrine of promissory estoppel may be invoked to make such promise binding in order to prevent injustice.
Unjust Enrichment: when one confers upon another something of value in relation to that act has reasonable expectation of compensation.
Offer: the 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.

be clear, definite, explicit, and leave nothing open for negotiation.

Firm Offer: (UCC 2-205) an offer by a merchant, to buy or sell goods, in a signed writing, which by its terms gives assurance that it will be held open, is not revocable for lack of considerable during the time stated.

If no time is stated, then for a reasonable time.
Such time may not exceed 90 days.

Acceptances: a manifestation of intent to enter into a K.
Assent: Words & acts that must manifest an intention to agree (reasonable standard).
Mirror Image Rule: acceptance that mirrors the offer.

A reply to an offer which purports to accept but is conditional on offeror’s assent to terms additional to or different from those offered is not an acceptance but a counteroffer.

Silence: DOES NOT constitute acceptance unless a duty to speak has arisen from a past relationship of the parties, their previous dealings, or other circumstances.
Certainty: a K is sufficiently definite and certain to be enforceable if the court is enabled from the terms and provisions thereof, under the proper rules of construction and applicable principles of equity, to ascertain what the parties have agreed to.
Mailbox Rule: offeree’s acceptance is effective when it is dropped in the mail.

Withdraw of offer effective when received by the offeree.
Repudiation by mail is ineffective.
If an acceptance is lost in the mail the offeror bears the loss.

Option K: an offer on the one hand and a separate promise to revoke the offer. An offer is an option K if it is in writing and signed by the offeror, recites purported consideration (any amount), and, either proposes a fair exchange within a reasonable time, or is made irrevocable by statute.
Duress: 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 K is voidable by the victim.
Misrepresentation: exists if (a) one party makes a false statement or omission in breach of a duty to speak, (b) of a material fact (or an immaterial fact if the statement is made with the intent to mislead), (c) on which the other party relies in entering, (d) reasonably.
Unconscionability: gross unfairness to one party. Procedural “unfair surprise,” fine print clauses, mistakes or ignorance of important facts or other things that mean bargaining did not proceed as it should.

Factors to Consider: age, education, intelligence, business experience, bargaining power, who drafted the K, whether the terms were explained to the weaker party?

Mutual Mistake: if there is a difference or misapprehension as to the substance of the thing bargained for; if the thing actually delivered or received is different in substance from the thing bargained for, and intended to be sold, then there is no K.

Present impossibility.
Present frustration of purpose (performance is of no value).

Unilateral Mistake: when only one of the parties is mistaken as to an essential element of the K, and the mistaken party did not bear the risk of mistake.
Assumption of Risk: a party who assumed the risk of a mistaken fact cannot void the K. A party bears the risk of a mistake when (1) the risk allocated to him by agreement of the parties, or (2) he is aware at the time the K is made that he has only limited knowledge with respect to the fact to which the mistake relates by treats this limited knowledge as sufficient, or (3) the risk is allocated to him by the court on the ground it is reasonable in the circumstances to do so.
Contracts that are Void: what is meant is that the transaction has created no contractual obligations at all.
Contracts that are Voidable: when one or both parties have the power to dissolve the legal relationship.

The exercise of that power is termed rescission, disaffirmance, or avoidance.
Until and unless a party with the power to rescind exercises it, a voidable contract remains in effect.

Contracts that are Unenforceable: the contract remains in existence, but under certain circumstances will not be enforced by courts.

EXAM NOTE à remember that a void contract cannot be enforced, but a party may opt to avoid a voidable contract.

Contracts I Issue Checklist

Contract Enforceability: Existence of an Agreement

Capacity to Contract

(1) Minors; (2) Mentally Incapacitated ; (3) Others

Has an Offer been Made?

à to whom is the offeror’s statement directed (§§29, 52)? The greater the # of people to whom the statement is directed, the less likely it is an offer.

Is the statement merely a preliminary negotiation, such as a quote of process, or a full-fledged offer (
Is the offer sufficiently certain so that its acceptance can give rise to an enforceable K (§§33-34; UCC 2-204(3))? The more terms that are left open or not discussed, the more likely the statement is a preliminary negotiation.
Despite (a) and (b), a K can exist if that is the parties’ intent, even ifa written memorial is contemplated afterwards(§27).

Is the Offeree’s Response an Acceptance?

Substance of the Response à

Rejection (plus counteroffer) or Inquiry

Inquiry if attempts to make terms explicit, if make suggestion for new terms without insisting on their acceptance, if ask whether negotiation on some further terms is permissible.
Counteroffers distinguished by clearer, more definite proposal that suggests alternative terms.

Counteroffer or Acceptance

Common Law Mirror Image Rule—Rest. 2d §59.
Rest. 2d §61 & UC

Pressure in Bargaining à Duress, Undue Influence (Narrowly defined)
Other Procedural Problemsà Fraud (misrepresentation); Constructive Fraud (narrowly defined)

Mistake-mutual, unilateral à but only if Rest. 2d. §153 a and b applies.

Pressure in Bargaining à Economic Coercion, Undue influence (broadly defined)
Other Procedural Problems à Fraud (concealment); Constructive Fraud (more broadly defined)

à Rest. 2d. §153 a or b applies.

Contract Enforcement: Remedies for Contract Breach

Types of Damages Recoverable

Expectation Damages

Basic Measure à monies which would have been earned had the other side performed.
UCC Calculation

market price – contract price; or
cover price – contract price, if cover.

Reliance Damages

Basic measure à put the injured party into the same position occupied before the contract was made, i.e., restore party to the status quo ante.

Restitution Damages

Basic measure à recover benefits conferred on the other party.

Specific Performance

UCC Cases à where goods are unique or in other proper circumstances (see. UCC 2-709, 2-716).
Restatement Cases à where damages at law are inadequate b/c of uniqueness of skill contracted for or in other proper circumstances (see Rest. 2d §§357-69.

Limitations on Damages

Rule of Hadley v. Baxendale à

What was foreseeable at the time of contracting, not at the time of breach;
Only loss must be foreseeable, not breach;
Foreseeability by party in breach important, not by injured party;
Foreseeability for risks known or had reason to know (objective approach); and
Foreseeable means probable, not necessary or certain to result.

UCC Cases à Under UCC 2-715, to collect foreseeable losses, the losses must not have been able to be prevented by cover.
Employment Cases à duty to make reasonable efforts to find similar, but not inferior, employment.
Construction & Land Cases à duty to not pile up damages.

Other Limitations

Speculative damages are not recoverable.
Punitive damages typically recoverable only if supported by an independent tort.
Pain & Suffering damages allowed only under the modern approach and only if integral to the K.
A liquidated damage clause may override all above rules if reasonable in light of expected damages at the time the K was made.

under the modern approach, a liquidated damage clause may also be enforceable is reasonable in light of actual harm suffered (UCC 2-718; Rest. 2d §356).