Contracts Outline

A. Introduction to Contracts
OVERVIEW
Defining Contract
1)      Contract: promise or set of promises for the breach of which the law provides a remedy OR the performance of which the law in some way recognizes as a duty
2)      Two types of contracts as to formation:
a)      Actual/Express Contract: contract formed by language (oral or written)
b)      Implied Contract: contract formed by manifestations of assent by conduct
3)      Two forms of contracts:
a)      Bilateral Contract: exchange a promise for a promise (“I promise to do X if you promise to do Y”)
b)      Unilateral Contract: exchange a promise for performance
i)        Only offeror has the obligation à only offeror can breach contract
ii)      Promise of Reward: alleged offer is intended to induce a potential offeree to perform a specific action (Carbolic Smoke Ball)
 
B. The Uniform Commercial Code (UCC)
OVERVIEW
UCC: state statute governing contracts for the sale of goods
1)      Focus: Article 2 à provides law only when subject matter of contract involves present or future sale of goods
a)      Goods: all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale
b)      Sale: passing of title from seller to the buyer for a price
2)      Rule: Article 2 applies to pure sale of goods but NOT to rendition of services
a)      Mixed Transaction: transaction that involves both the sale of goods and services
i)        Rule: Incidental item (good or service) does NOT affect the overall label of the contract
ii)      Rule: Dealerships/distributorships are to be treated as sale of goods à sales aspect dominates (Custom Engineering – since parties were engaged in Dealer Agreement for sales, contract was for sale of goods so governed by the UCC)
b)      Issue: Whether UCC governs a mixed transaction à 2 different tests:
i)        Gravamen Test: look to portion of transaction upon which the complaint is based to determine if contract involved sale of goods or services
ii)      Predominant Factor/Predominant Purpose Test: look at transaction as a whole to determine whether predominant purpose of contract was the sale of goods or a service
(1)   To determine predominant purpose, examine:
(a)    Language of contract
(b)   Nature of business of supplier of goods and services
(i)     If agreement expressly states that relationship between parties is buyer and seller, contract is generally for sale of goods
(c)    Reasons parties entered into contract à what each party bargained to receive
(d)   Amounts charged under contract for goods and services
(e)    Final product
(f)    ***No factor alone is a deciding factor
(2)   Conclusions . . .
(a)    If transaction was predominantly a contract for sale of goods, UCC governs
(b)   If transaction was predominantly a contract for service, common law governs (Pass – by applying PPT, court reasoned that, as a whole, predominant purpose of D’s airplane inspection was sale of service with sale of goods incidental to that service, so UCC does not govern)
(c)    Party seeking application of UCC bears burden of proof to show that predominant purpose of contract was sale of goods
 
UCC
2-314. Implied Warranty of Merchantability
1)      Warranty that goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind
2)      For goods to be merchantable, they must:
a)      Pass without objection in the trade under the contract description
b)      Be fit for the ordinary purposes for which the goods are to be used
c)      Be adequately contained, packaged and labeled as the agreement requires
d)     Conform to the promise of fact made on the container or label if any
3)      Responsibility for imperfect goods assigned to merchant sellers, NOT buyer
a)      If conditions in 2-314 are met and parties do not do anything to eliminate the warranty, warranty automatically becomes part of contract, and merchant seller liable if warranty breached
4)      Merchant seller and buyer do not need to make obvious any intent to include an implied warranty of merchantability in contract à as long as statutory elements present, warranty arises
 
C. Reaching an Agreement
THE OBJECTIVE THEORY OF ASSENT
1)      Three questions to ask when determining if a contract exists:
a)      Was there mutual assent?
b)      Was there consideration?
c)      Are any defenses available to creation of the contract?
 
Objective Mutual Assentà each party is bound by the apparent intention he manifested to the other
1)      To determine if the promisor manifested his intention to enter into the contract, court must look at:
a)      What a reasonable man would understand, AND
b)      What the promisee so understood
2)      Intention in express contracts is embodied in the words, conduct, acts, and express declarations of the parties (applies to oral and written contracts)
a)      If a person’s words or acts, judged by a reasonable standard, manifest an intention to agree, agreement is established à immaterial what may be his real but unexpressed state of mind (Embry – since reasonable man would interpret D’s words to mean assent to P’s employment demand, agreement established; Lucy – even though D may have intended agreement to be in jest, since did not indicate this until after agreement made, contract enforced)
 
RESTATEMENT (SECOND) OF CONTRACTS
17. Requirement of a Bargain
18. Manifestation of Mutual