Contracts Gergen Spring 2016
Does UCC or CL apply? (sale of goods)
Predominant purpose test
Language of K
Nature of the business
Value of goods > other (e.g. services)
Does the SoF apply? Is the contract for:
Marriage
Land/interests in land
Cannot be performed in 1 year
Sale of goods for over $500 (remember UCC 2-201(2)-(3) exceptions)
Unenforceable unless contained in signed writing (can be series of writings)
Contains sufficient material definition of terms
Consider modifications
Analyze the communications over time
Assess each communication. Is it an:
Offer
Must give power of acceptance to offeree, intent to enter into bargain and definite terms
Ads are usually not offers
Inquiry
Counter-offer
Conditional acceptance
Solicitation of offer/invitation to deal
Are they signed? By who? REMEMBER mailbox rule
Can be indirect
Lapse after reasonable period of time
What’s the central theme?
Who’s more reasonable/innocent?
Who had more bargaining power?
Basic considerations:
Enforcing a promise: bargain, promise, tort, unjust enrichment
Four types of misunderstanding
What was each party’s purpose/goal in entering in the K in the first place? (Do not overlook!)
Don’t analyze something unnecessarily. What hinges on that point? Why does it matter?
BIG PICTURE
Core Doctrine:
The law of contracts is a voluntary obligation, usually an express/implied commitment
Contracts is concerned with private order
Will either be an expression or intention to act/refrain from acting
General Requirements for Contractual Obligation (Voluntarily Undertaken Obligations)
(1) Promise or other expression of assent to an obligation – this is most important
(2) Legal basis for enforcing the promise/obligation– the principal basis under US law is that the promise be made as part of a bargain (bargain = consideration in the narrow definition)
(3) Written Evidence (sometimes) – usually required when it is under the statute of frauds
Bases for Obligation [Gardner]:
Tort (reliance/harm): pay for injuries done to another (in reliance to promise) à justice is known after the event (harms based)
Bargain: pay seller the price agreed upon à justice known before the event (promise based)
Promise: Promises are binding & kept in all cases à justice known before the event (promise based)
Quasi-Contract (unjust enrichment): pay for anything of value except voluntary gifts ! justice known
after the event (benefits based)
Bargain & promise are both forward looking à look to the obligations that I will undertake
Tort & quasi-contract focus on notions of fairness and are retrospective, based on what happened
Sources of Contract Disputes
When people make a bargain, expectation is that exchange will be mutually beneficialà if bargain is not consummated usually because circumstances change and increase the cost of performance or diminish the value
Another source of contract disputes is misunderstanding
Legal Formalities in Contracts:
4 Purposes legal formalities serve:
Evidentiary: Insufficient proof that it is a contract/”manufactured evidence” à did the actor really make this choice?
Cautionary: Safeguard against own/others rashness à encourage the actor to think about the choice
Channeling: Legal formalities provide an autonomous individual the means to achieve an outcome that requires the assistance of the state àif you want something to happen, then must do this (i.e. marriage ceremonies)
Enforceability must be made apparent to parties (& that there are legal consequences) àassumes a legal fiction that everyone knows the law
o Deterrent: Suspect/marginal value contracts à legal formalities might make certain undesirable contracts (such as pre[nuptial contracts) hard to do because do not think should undertake this type of obligation (but not impossible to do)
The seal used to be a legal formality to make a promise legally binding but has since lost its effect à power of seal has become diluted, too burdensome and too hard to make contracts legally binding & once the seal’s significance is diluted, loses its social recognition
Legal formalities give people who are able to afford lawyers more power, because they can understand the form and understand what it takes to make a promise legally binding
Classical v. Modern Contract Theory Approach
Classical contract law – “rigid” because it relies on the objective, standardized, static & binary rules; classical contract is formal, axiomatic, and deductive
: verifiable, observable information
: one of two outcomes, it either is or it is not
: Rules apply to cases, one size fits all
: turns on the time & place of when the contract was made, does not take into account evolving relationships of parties
Classical theorists thought that they had good reason to do what they did ! virtue of rules is that it makes
people determine contract obligations themselves, most important value at the time
Predictability and certainty were valued over just results
Bargain test [the enforceability doctrine] is a product of classical contract theory
But actual reality in the application of the body of rules was not necessarily “simple & predictable” à classical contract would require that sometimes judges manipulated the rule to get a result they wanted, so got fair results by interpretation and manipulating the rules
Modern Contract law – “flexible” and contextualized, preference for standards over rules, consideration of factors including justice factors, up to the courts
Theories that arose from modern contract law include unconscionability & duress doctrine, but sometimes th
onspicuousness req for warranty disclaimers); reasonable expectations; unconscionability (esp. procedural strand)
Policing Bad Bargains:
Duress / Pre-existing duty
Unconscionability (substantive strand)
Policing Performance:
Waiver & Estoppel
Duty of Good Faith & Fair Dealing
Mitigation, material breach, repudiation, & insecurity
Discharge from obligation to perform à MOST IMPORTANT! (no Ct!)
Express Condition
Constructive Condition
Substantial Performance
Material Breach
Cognate UCC rules (§§ 2-601, 2-508, 2-608, 2-612)
Background damage rules
Expectation Principle
Duty to mitigate
Speculative losses/reliance as a surrogate measure (restitution)
Losses outside the scope of the K (foreseeability)
Situation-specific rules à (remedial costs, cover, etc.)
Agreed Damage Rules à liquidated damages & limitation of remedies
Specific performance & disgorgement
Goal of all K Remedies
(1) Give aggrieved party benefit of bargain
(2) Minimize cost to breaching party
(3) Minimize litigation and legal uncertainty
Subsidiary goals:
Avoid forfeiture
Deter opportunistic breach
Deter opportunistic legal claims
Create good incentives for contracting, performance, litigation, etc.
Legal Formalities à Acts/forms required in order to achieve the specified legal consequences
i.e. Marriage Ceremonies, “The Seal” (downfall due to gradual dilution of formality), etc.
Four General Purposes:
Evidentiary à Provides a Record
Cautionary à Provides notice to parties that they are undertaking legal obligations
Channeling à “Channels” for individuals to undertake legal obligations (autonomy)
Deterrent à Force parties to think before committing themselves
The Law of Obligations:
Contracts à Promise-based (generally)
Torts à Harm-based
Unjust Enrichment (Restitution) à Benefits Based
Promise à Commitment about the future
Bilateral Contract à Promise for a promise
Unilateral Contract à Promise for performance
Forfeiture à Loss of compensation for work done in preparing/performing a K
BUT à Sometimes also applies to lost benefit of the bargain (context/state specific)
Static à Turns on conditions present at time of contract, instead of evolving world of parties’ dealings
