Contracts Wooten Fall 2014
A. Introduction of Contracts (P.1-17)
(a) Legal definition of contract, Contract is an exchange relationship created by two or more parties containing a promise and is enforceable by law – only certain circumstance requires the contract to be written.
(b) Contract as state law – except in some very narrow circumstance state law governs contracts. NO single unified law of contracts in U.S
(c) 3 sources of contract law
(i) Common law – precedent places great importance on the role of the court as participants in the creation of the law. Contracts are based heavily on common law not legislation.
(ii) The Restatement, Second – helped by Samuel Williston help set the tone of contract law in the 20th century original by Farnsworth published in 1932 2nd publishing took place in 1981 which was the major influence on the UCC.
(iii) The Uniform Commercial Code (UCC) – Article 1 of the UCC deals with general provisions set out to apply to all transactions in the UCC. Article 2 covers sales of goods. Goods are described as being a movable item.
(d) Theoretical Perspectives
(i) Go beyond the rules ask question, why are the rules there? Are they effective? Are they just and morally justifiable?
(ii) Jurisprudence thinkers – ponder moral underpinnings and social values of contract law
(iii)Classic view – free market – government intervention frowned upon; enforce contracts at their face value.
(iv)Legal Realism – law in action – judicial discretion
(v) Law and economics movement – gained great support – law facilitates rather then interferes with the operation of the market. Greatest good a society as a whole.
What Makes an Agreement a Contract (P. 18-36)
(i) An exchange relationship – a reciprocal agreement each party gives something up to get something from the other party.
(ii) Created by agreement
(iii) Containing at least one promise
(iv) Recognized as enforceable by law
*Cases:* Cohen v. Cowels Media Co. Minn. S.Ct. (1990)à The law does not create a contract where the parties intended none. Ethical obligation alone cannot satisfy the requirements of creating a contract.
Pierce v. The Clarion Ledger, S.D Miss. (2006) à ruling based on Cohen precedent – no contract where none was intended. Journalistic ethics bars reporters and sources from entering contracts relating to provision of info or publication of stories.
Remedies – Damages or Specific Performance
(a) Damages or Specific Performance:
· Logical remedy of ordering the person to do what was promised in the contract known as specific performance.
· Common policy to treat specific performance as the exceptional remedy because damages are more efficient and less burdensome means of rectifying a harm caused by breach of contract – injured person get the benefit of the bargain.
*Case*- Kilarjian v. Vastola, N.J S.Ct. (2004) à Contracts cannot be enforced with specific performance when doing so would advance injustice or hardship. But contract breached therefore plaintiff (innocent) entitled to benefit of the bargain.
(b)Expectation Damages – aka Compensatory Damages
· Compensatory damages intended to recompense the injured claimant for losses due to the breach and to give the victim of the breach the benefit of the bargain.
· Called expectation damages because they focus on awarding the plaintiff a sum of money that will compensate him for loss of the economic benefit that he reasonably expected from the transaction.
(c) Method of Enforcing an Award of Damages
· Forces it with government officials and agencies – contempt power to compel the defendant to perform – can fine or imprison the person refusing to comply.
· Money is not so easy – have to do it by collection the money from property of the defendant if refuses to pay.
Merchants and Article 2
Article 2 applies to every transaction that qualifies as sales of goods, no matter who the parties are.
· There are a few provisions under Article 2 which impose special rules or standards
UCC 2-104(1) Definitions: Merchant…
Merchant means 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 to 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 as having such knowledge or skill.
B. Contractual Assent and the Objective Test p. 59
· Contracts are formed by mutual consent – both parties must intend a contract and they must agree to the terms
· Communication by words but sometimes by conduct is essential to the formation of a contract.
· Contractual assent is determined by having regard to their apparent intent as show by their overt acts and words.
· The objective test recognizes that full and perfect assent is not the only value to be served by contract law. – Subjective internal thought is not reliable cannot prove it
· A meeting of the minds – a conscious deliberate agreement between parties gauged from their subjective intentions
*Cases* Morales v. Sun Constructors, Inc., U.S Appeal (2008). Not understanding an arbitration agreement (different language), or an employer failing to explain it will not constitute special circumstance warranting relieving an employee from compliance with the arbitration agreement that is signed. M’s signature manifested his assent to the entire agreement; he is bound by the clause. No fraud alleged. Boss didn’t try and hide the arbitration clause.
The Duty To Read p.69
· The accountability for knowledge of a contracts term is often called duty to read.
· If you do not understand what is in a contract it is your responsibility to find out before you manifest your assent through your signature.
· A party’s accountability for assent is likely to be an issue to unread terms on standard predrafted terms.
*Case* James v. McDonald’s, U.S App.Ct. (2005) à A party can be compelled to arbitrate only those matters that she has agreed to arbitrate. An agreement to arbitrate is like any other contract, if there is no contract there is no forced arbitration. The official rues were identified to Ms. James as part of the contest, and that identification is sufficient in this case to apprise her of the contents of the rules.
· This is the standard, predrafted document, which are commonplace in the modern economy. Her duty to read the rules.
· Arbitration clauses have become increasingly common in both negotiated and standard contracts – form of dispute resolution. Speedier and less costly.
C. The Offer p.95
(a) Offer and Acceptance Model –
· Proposal of terms is called an offer, the person who makes it is called the offeror. The offeree is the person who is offered the contract.
· Counteroffer where the offeree rejects the offeror’s offer and submits his own terms, which may or may not be accepted.
· The hallmark of an offer is that it gives the offeree the power to make the decision on whether or not there will be a contract.
· If proposal does not give this power to the recipient but keeps the final decision in the hands of the person who made the proposal it is simply not an offer.
· Useful to think of acceptance as having both a substantive aspect (assent to the contract terms) and a procedural aspect. (Communication of that assent in the proper time and manner)
· Inaction is considered rejection – to reject you can do nothing
· Can cut short the time of an offer by revoking the offer but has to do this before the offer has been accepted
(b) Offer under common law –
· The restatement, second section 24 defines offer as the manifestation of willingness to enter into a bargain, to justify to another person in understanding his assent to that bargain is invited and will conclude it.
(c) Offers under UCC Article 2 –
· Does not contain a definition of an offer or any rules that specifically address offers.
· UCC 1-103(b) Applicability of Supplemental Principles of Law: Unless displaced by the particular provisions of the UUC, the principles of law and equity… supplement its provisions.
· UCC2-204. Formation in General
(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
(d) Intent of a Communication to Determine Whether its an Offer
· when a court deals with a dispute over the meaning of manifestations by words or conducts it must interpret that meaning.
· Use a dictionary for the words in context they are written – referred to as interpretation within the “four Corners” of the document.
· Rule of thumb – if no contextual evidence interpretation is considered a matter of law for the judge to decide.
· But if there is contextual information – and the dispute is a matter of fact may be properly handled by a jury.
*Cases* Fletcher Harlee Corp v.
oncludes that the burden has not been met nor satisfied and finds for the defendants. Unlike the Osprey case there was no fax log and no telephone record to show that the fax was properly transmitted to Nicholson. Stewart cannot say with certainty if the fax actually went through.
Revocation of an Offer, p. 149
Unless an offer qualifies as an option, the offeror is free to revoke it at any time before it is effectively accepted.
· The offeror has the power to revoke even if the offer states that it will be kept open for a specific period of time.
· Has to receive something in exchange for leaving an offer open – consideration for an option contract.
*Cases* Hendricks v. Behee, Missouri Court of Appeal, (1990)àThere is no contract until acceptance of an offer is communicated to the offeror. An uncommunicated intention to accept an offer is not an acceptance.(objective test) Communication of acceptance of a contract to an agent of the offeree is not sufficient and does not bind the offeror. The notice to an agent of the offeree that the offeror is revoking an offer is within the scope of the agents’ authority and binding upon the offeree.
Dickinson v. Dodds, Ct. App. (1876). (Indirect Revocation)à An offer being made nudum pactum(An informal agreement that is not legally enforceable, because it does not fall within the specific classes of agreements that can support a legal action) was not binding and without a complete acceptance the other party is free to negotiate and sell to anyone else. Dickinson was aware that Dodds had changed his mind, and had in fact agreed to sell the property to Allan. It is impossible, therefore, to say that there was that continuance of the same mind between the two parties, which is essential in point of law to the making of a contract.
Option Contracts (P.384-386, 393)
· The purpose of an option contract is to allow the offeree some time which to decide whether to accept the offer.
· Option contract makes an offer firm it insulates it from the usual events that otherwise terminate the power of acceptance.
· The offeror obligates himself to keep the offer open – any attempt of revocation during the term will be ineffective.
· Even if the offeree rejects the offer or makes a counteroffer the original offer will remain in effect.
· Stays open even if the offeror dies or loses legal capacity, the offer continues.
· The offeree has no obligation and can wait to see how things develop, speculate at the expense of the offeror.
· There has to be some kind of bargained consideration for the option term, to benefit the offeror for taking the risk of keeping the option open.
(i) Firm Offers- UCC 2-205 Firm Offers
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 consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must separately signed by the offeror.
Acceptance by Performance, p.154
(i)Unilateral v. Bilateral –
· A bilateral contract is where both parties have made promises to do something in the future – a future service for a price to be paid once completed is an example.
· Distinction of unilateral contract is the mode of acceptance.
· When an offeree elects to perform fully as a means of accepting the offer, thus creating a unilateral contract.
· Simply put unilateral contract is when the obligation of one party is completely performed at the onset of the contract.
· Ex. Is an advertisement worded correctly could be a unilateral contract – requires acceptance by performance and this qualifies as a unilateral contract.