Contract Outline Mensch “Cow Rose” 2008
Roadmap to contract exam
What body of law is involved? UCC or common?
Formation of Kàdoes K exist or not?
1) Offer and acceptanceàdo they exist?
a) Look at communications btw. parties:
i) Offer, acceptance, counter-offer, revocation
ii) Mirror-image rule, 2-207àvarying acceptance? Add./Diff. terms?
iii) Option K? Restatement 87 or 2-205
iv) 2-204 and 2-206àgeneral principles to find K exists (goods)
2) What terms become part of K?
3) Considerationàbenefit/detriment and/or bargained-for-exchange
a) Illusory promise
b) Past consideration
4) Bilateral and Unilateral Ks
a) Classical approach (Petterson)
b) Modern approach (Caldwell Banker, Restatement 32, 45)
5) Express, Promissory Estoppel, Implied-in-fact, Implied-in-law
Statute of Frauds
1) Does it apply?
a) UCC 2-201à>$500, signed writing (sufficient? exceptions? linkage of series of writings?), quantity?
i) (2)Btw. merchants?
ii) (3)(c) goods or payment received/accepted?
b) Restatement 110–>1-yr. rule, realty
1) Contra-preferendum, Restatement 206
2) Restatement 201(2)àinterpreted against party with superior knowledge
3) Canons of Construction
4) Frigaliment case
a) Does Ct. determine K is ambiguous? (considers evidenceànot about parol evidence)
c) Corbin’s rule
d) Is term reasonably susceptible to perferred meaning?
5) Course of performance, course of dealings, trade usage–>can add to agreement (UCC)
6) Parol Evidence Rule
a) Integration? (total or partial?) No? PER doesn’t apply.
b) Is one party trying to introduce other terms? If so, do they:
i) Contradict? Prohibited if total or partial
ii) Supplement? Possible with total or partial
iii) Interpret? Permissible with total or partial
c) Merger clause?–>Restatement 210(b) says “evidence” of total integration
d) 4-corners approach
e) Any exceptions to PER?
Implied terms and Good Faith
1) Implied terms that save K
2) Implied covenant in good faith and fair dealing
1) Detrimental reliance on promise/assurances?
2) Must meet all elements for reliance damages
1) Any benefit received with knowledge or consent?
Promissory restitution/Material benefit
1) Any promise after benefit conferred?
2) Material benefit rule
Mutual Assent: Each party must intend to enter the K and must agree with each other to do so on mutually acceptable terms.
A tentative expression of interest in transacting, an invitation to make an offer, a letter of intent, or a request for information that may lead to an offer is only a proposal, not an offer.
§ The communication must convey the reasonable understanding (objective) that offeror intends a K to arise and expects to be committed upon acceptance
§ The offeror confers on the offeree the power to decide whether or not a K will come into being
§ If the proposal reserves to the proponent the final say on whether to be bound, it’s not offer but merely a preliminary communication.
Requirement for offer
§ Must be communicated to the person to whom it’s addressed
§ Indicate a desire to enter into K
§ Directed at some specified person or group
§ Must invite acceptance
§ K will arise without any further approval being required from the offeror.
Offer v. Proposal: Need to determine whether a reasonable person would have perceived
1. Words used in the communication should indicate objectively the offer was intended
2. A communication that omits significant terms is less likely to be an offer; Comprehensive and specific terms are required
3. Should be specifically directed to a particular person (i.e. no ad is an offer)
4. Previous dealing between parties/ prior existing relationship indicate how the offeree reasonably should have understood the communication
5. If parties are member of the same community, parties must aware of any common practices on trade usage: Helps reasonable understanding of communication.
Mailbox rule: The burden is on the offeree to prove proper dispatch (e.g. receipt, fedex slips etc) so there’s clear evidence that acceptance was mailed on time.
Mailbox rule is not applicable if acceptance follows a counter offer or rejection.
Promissory Estoppel: can substitute consideration
-Promise was deliberately made with reasonable expectation of inducing her to rely on it and she did act in justifiable reliance that she suffered some detriment as a result.
UCC 2-306 (output K) v. UCC 2-615 (impracticability)
§ UCC 2-306: Seller/buyer needs to use best effort to fulfill obligation in good faith until the point where it’s covered under risk allocation/ part of the risk each party undertook.
§ UCC 2-615: Something disastrous/catastrophic is NOT part of the risk that was undertaken
§ -It is not K breach if parties stop carrying out obligation due to impracticability.
Option to contract: A promise to keep an offer open for a stated period of time.
§ The offeror undertakes not to revoke the offer for a specified period so that the offeree is assured of a set time to consider and respond.
§ Offeror: binds to offer as soon as the option is granted to offeree
§ Offeree: NOT bound until acceptance
§ Common Law: option granted for free is not bindingà CL doesn’t treat a promise as contractual and binding unless the promisee has given consideration
§ Option needs its own consideration to hold offer open besides the real consideration for a promise (e.g. deposit or down payment)
§ In unilateral K, option to K plays a crucial role: If there’s part performance, the offeror can’t revoke the K because part performance creates option to K and substitutes consideration.
When consideration consists of the exchange of mutual promise, the undertaking on both sides must be real and meaningful.
§ Mutual obligation: both sides must be bound by obligation
§ Good faith obligation: both parties must use best effort in good faith
§ Exclusive dealing: obligation can be implied by exclusivity of dealing.
§ Implied terms cure the problem of illusory promise (voided promise due to lack of mutuality)
Mutuality argument structure
1) needs to have sufficient risk-allocation contract; there’s no risk allocation and no mutuality: K is not enforceable
2) However, insufficient risk-allocating K can still have recovery under section 90 reliance theory based on induced detriment relying on the promise
3) Section 90 reliance requires reasonable reliance: since it’s a commercial setting, merchant should know better not to rely on just a promise which lacked mutuality; substantial reliance on a promise which doesn’t serve to mutually allocate risks and impose reciprocal obligations is by definition unreasonable.
4) It’s justice argument: As a condition of recovery on a promise, that’s equivalent to a contractual assumption of risk is to ignore the whole justice based (not risk-allocation) purpose of section 90: Section 90 is essentially a justice argument.
Output contract UCC 2-306
Flexible quantity terms are regarded as too vague and lacked mutuality.
è Broad discretion given to the party who determined quantity made that party’s promise illusory because requirements buyer could elect to have no requirements and output seller could decide to produce no goods: Seller and buyer are not obligated to do anything.
è Problem of lack of mutuality/vagueness was solved by UCC 2-306
è UCC 2-306: Even if the K doesn’t say so expressly, the discretion to determine quantity is limited by an implied obligation of good faith or reasonableness and by an implied obligation of exclusive dealing
§ Actual output or requirements as may occur in good faith
§ Quantity demanded or rendered may not be disproportionate to any estimate.
Duress: K can be rescind if there’s duress
Economic duress: an illegitimate threat to proprietary or economic interest.
Elements: 1) one of the parties must make a threat
2) The Threat must be improper
3) The threat must induce the apparent assent and leaves victim no reasonable alternative but to a
4 situations in which offers can’t be revoked
1) Option-there has not been an offer but there are 2 more facts in the communication: 1) there is additional promise not to cancel the offer-addition promise to hold the offer open 2) there’s some payment for that promise.
e.g. I offered to sell my car to you for 1000 dollars. You wanted a week to think about it. I gave you an option to hold this offer open for a week if you pay me 10 dollars. We have option here; can’t revoke the offer.
2) UCC Provision: firm offer rule: Merchant promising in writing not to revoke the offer
-Only for sale of good
-Offer must be express promise not to revoke
=Must be in writing
-must be by merchant
How’s (1) and (2) different?
-Firm offer rule only applies for sale of goods (option applies all the time)
-Firm offer rule only applies if the promise was in writing (no writing requirement for option)
-Option rule requires there has to be some payment to promise not to revoke the offer
3) The offer has been relied on in a way that is reasonable and foreseeable (reliance0
e.g. I am a general contractor in construction business. I build hotels. I am trying to K to build a new hotel. While I’m in construction business, I rely on someone else to put in elevators-sub contractor. I come to subcontractor and tell him I’m going to bid in this hotel K, if I hire you to do the elevator, how much will you charge? You charged me 200 dollars. I relied on your bid and participated in the bid for the hotel. I relied on your offer in a reasonable and foreseeable way. You can’t cancel your offer.
4) You have an offer to enter into a unilateral contract and performance has begun. (Part performance-section 45 option contract)
Offer to enter into unilateral K:
-Unilateral K requires performance and it is the only possible method of acceptance
-once you start performing, you can’ t revoke the offer.
3) RESPONSE: WHETHER RESPONSE IS ACCEPTANCE
Who and how and when ?
1) only the person to whom the offer was made can accept the offer
2) How can an offer be accepted?
o The terms of the offer can control the method of acceptance
· Was there any language in the first communication that controls the method of acceptance?
§ However in the real world, there’s no term that says about the method;
· Default rule: Anything reasonable would constitute acceptance.
What we have is an offer made by one person. I offer you 1000 dollars to paint my house. There’s no verbal response. But instead, you started painting house without saying anything.
2 Rules: Offer followed by start of performance without verbal acceptance/agreement
Bilateral K: If it was an offer to enter into bilateral contract, the start of performance is an implied promise, it’s acceptance and creates a bilateral contract.
Unilateral K: If the offer was an offer to enter into Unilateral K, then the start of performance is NOT enough
If in doubt, it is bilateral–> UCC
It’s unilateral, only if the offer uses the word ‘performance’
However, this is very unclear
With all communication between the parties, it’s effective when it’s mailed
All communication except acceptance, it’s valid when it’s received