Contracts Outline

Korzec
Contracts
Fall 2009
 
 
Applicable Law: What law applies to the issue? Always determine this first!
Common law: case law
UCC Article 2 (Pre-revision): statute
Applies to all cases involving the sale of goods
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CONTRACT: A contract is a promise or set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. (Restatement, Second §1)
–          Key factors that must be present for an agreement to qualify as a contract:
o   Exchange relationship
§  A reciprocal arrangement in which each party gives up something to get something else from the other
o   Created by an agreement between two or more parties with the capacity (in MD – capacity is 18+ yrs. old) and intent to contract
§  Both parties, in the exercise of free will, consent to enter it with both the power to choose whether or not to make a contract and the power to assent to its terms
o   Containing at least one promise
§  A least one party must have committed to do something or refrain from doing something in the future
o   Recognized as enforceable in law
o   Offer + Acceptance + Consideration
TYPES OF CONTRACTS:
(A) Different in formation
Express Contract: formed by language, oral or written
Implied Contract:
a.       Contracts Implied in Fact: formed by manifestations of assent other than oral or written language, i.e., formed by conduct
b.      Contracts Implied in Law: Ex. Quasi-Contract: They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring action in restitution to recover the amount of the benefit conferred on the defendant. NOT A REAL CONTRACT- No mutual assent
(B) Different in acceptance
Bilateral Contracts- Exchange of Mutual Promises: a promise of both parties to be performed at a future date, promise for a promise- in which each party is both a promisor and a promisee.
Unilateral Contracts- Acceptance by Performance: where the offer requests performance rather than a promise to perform. Here, the offeror-promisor would promise to pay upon the completion of the requested act by the offeree- promisee. Acceptance is accomplished immediately on performance, and a contract is formed.
Occurs in two situations:
                                                              i.      Where the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance- the offeror is the master of the offer and may create the offer in this fashion; or
                                                            ii.      Where there is an offer to the public, such as a reward offer, which is so clear that only the performance requested in the offer will manifest acceptance.
Example: Susan promises to pay Charles $5 if he will deliver a textbook to Rick (offer is a promise to pay for performance). Charles is not obligated to delivery the book, but if he does in fact deliver it (acceptance by performance), Susan is obligated to pay him $5. 
REMEDIES:
–          Contractual remedies seek to protect the reasonable expectation of the parties usually focusing only on repairing the economic harm of the breach and does not aim to compensate for any of its noneconomic consequences             
–          Cannot have equitable remedies for service contracts (ex. Making someone a slave)
–          Types of remedies:
–          Expectation Damages: 
o   Legal remedy/ Monetary remedy (standard form of remedy):
§  Compensatory Damages:
·         Aims to place the non-breaching party in the same economic position he reasonably expected to have had had the contract been upheld/ performed and not breached.
·         This is usually done by awarding the non-breaching party a sum of money sufficient to place him in the financial position that he would have occupied had the contract not been breached.
§  Punitive Damages: Monetarily punishes the defendant to make an example of his conduct to discourage others from behaving the same way – may be awarded in addition to compensatory damages. Only appropriate where the defendant has engaged in conduct that merits punishment – where the defendant has injured the plaintiff by acting deliberately and maliciously, or with recklessness.
o   Enforcement: When the court awards monetary damages, the defendant owes the stated amount of money to the plaintiff… this is NOT A COURT ORDER- payment cannot be compelled by the court’s contempt power
 
o   Equitable Remedy:
§  Specific performance (awarded in very rare and unique instances)
·         Where an award of damages at law would not properly compensate, because:
o   (1) It would be too difficult to prove damages
o   (2) The promised performance was so unique that a monetary award could not compensate for his losses ex. Real estate
§  Specific performance is available only in limited circumstances
·         Designed to give the plaintiff the benefit of the bargain
·         Here, the court orders specific performance where the court orders the defendant to perform what she promised
·         Note: it can be very burdensome to enforce an order of specific performance. Ex. Ongoing work such as the construction of building, an order of specific performance can involve extensive supervision; or cases involving personal service
§  Injunction: Court order either compelling the defendant to take specified action or forbidding action
·         Mandatory: court order requiring the defendant to take action – example: specific performance
·         Prohibitory: court order requiring the defendant to stop an action
§  Declaratory Judgment: the court is asked to give a judgment declaring the rights of the parties without awarding damages. It is useful where the plaintiff does not seek damages but needs a judicial determination of his rights.
o   Enforcement: When the court awards specific performance, the award is COURT ORDERD… as such, the court can compel performance as ordered. That is, if the defendant refuses to perform voluntarily, the court can fine or even imprison him until he obeys the order.
INTRODUCTION TO THE SALE OF GOODS:
–          Uniform Commercial Code: statute
o   Contracts for the sale of goods are governed by Article 2 of the UCC
–          Article 1: Sets out general statements of purpose, policy, interpretation, and approach that apply to all transactions covered by the UCC, including sale of goods
o   UCC 1-103(a): The UCC must be liberally construed and applied to promote its underlying purposes and policies, which are:
o   (1) To simplify, clarify, and modernize the law governing commercial transactions;
o   (2) To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and
o   (3) To make uniform the law among the various jurisdictions
o   UCC 1-103(b): The common law principles supplement Code provisions unless displaced by them. Therefore, where the UCC does not deal with a particular aspect of the law or does not deal with it fully enough, the court must look to common law to resolve the issue.
–          Article 2: This article applies to the sale of goods
o   UCC 2-103: “Goods”: All things movable at the time of identification to a contract for sale
o   UCC 2-106: “Sale”: The passing of title from seller to buyer for a price
HYBRID CONTRACTS: Transactions that include both the sale of goods and the provision of services.
–          2 Test Applied to Determine Law Governing the Contract:
Predominant Factor Test:
                                                              i.      What is the predominant purpose of the overall transaction? (Majority test in MD)
1.      If the predominant purpose of the overall transaction is for the sale of goods, then the UCC applies; if the transaction is predominantly for the rendition of services, then the common law applies
Gravaman Test:
                                                              i.      Examin