Professor Andrea Bjorklund
Book: Knapp, Crystal & Prince, Problems in Contract Law (6th ed. 2007)
§344. Purpose of Remedies
(a) Expectation interest: restore potential earnings (payment – cost); put Promisee in as good a position had the contract been fulfilled. (encourage trade)
(b) Reliance interest: Restore amount already spent; put Promisee back in original position had there been no contract
(c) Restitution interest: Restore benefits conferred; put Promisor back in original position had the contract not been entered into
Three corresponding ways to enforce promises/impose obligations:
Consideration à Expectation damages
Promissory estoppel/reliance à reliance damages
Restitution or unjust enrichment à restitution damages
(1) An agreement entered into by
(2) Two or more persons
(3) Both of whom are legally competent
(4) For consideration
(5) Embodying one or more promises to perform or forbear from specified acts
(6) Enforceable at law
(8) And accepted
(9) In a manner that accords with the Statute of Frauds
IS THERE A CONTRACT?
Which Law is Governing?
Ks for the sale of goods (i.e. things that are movable and not real estate) are governed by rules found in Art. 2 of the Uniform Commercial Code (UCC)
i) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities, and things in action” UCC §2-105.
(1) Does not cover contracts involving real estate, patents, trademarks, or other intellectual property
ii) “Merchants.” “Merchant” means a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person’s employment of an agent or broker or other intermediary that holds itself out by occupation as having the knowledge or skill. UCC §2-104
iii) “Consumer” means an individual who buys or contracts to buy goods that, at the time of contracting, are intended by the individual to be used primarily for personal, family, or household purposes.
b) Covers:Consumer-consumer, Consumer-merchant, Merchant-merchant
c) Revert to common law principles to resolve issue if Art 2 does not cover an issue
i) Ex: Art 2 often uses term “offer,” but does not define it. Thus, you must turn to common law principles
Ks for the sale of goods between a party whose place of business is in the United States and a party whose place of business is in another country that has joined the CISG is governed by the CISG
All other Ks are governed by the common law.
In the event of a conflict of laws, the common law is superseded by the CISG or the UCC
What is a Contract?
Definition of a Contract
Rest of Contracts (second) § 1: A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty
1. An agreement entered into by
2. Two or more persons
3. Both of whom are legally competent
4. For consideration
5. Embodying one or more promises to perform or forbear from specified acts
6. Enforceable at law
8. And accepted
9. In a manner that accords with the Statute of Frauds
Types of Contracts
Types of Contracts as to Acceptance:
1. Unilateral—Acceptance by Performance:
a. A contract in which only one party promises to do something , and the other party is free to act or not as she wishes, is called a unilateral
b. Offeror-promisor would promise to pay upon the completion of the requested act by the promise. Once the act was completed, a contract was formed. One promisor and one promise.
c. Patterson v. Pattberg:
i) Facts: performance of an agreement concerning a debt with defendant bond owner, which provided for a reduced principal if it was paid off early. The decedent originally paid defendant installments of the principal. After several installment periods
ii) Held: defendant. the decedent entered into a unilateral contract, defendant was legally entitled to revocation rights before performance was completed.
2. Bilateral—Exchange of mutual promises
a. Defn: consisting of the exchange of mutual promises, i.e. a promise for a promise, in which each party is both a promisor and a promise.
b. Acceptance by return promise requires notice. Acceptance must be given within reasonable time – could be after performance has commenced but must be straightaway
Types of Contracts as to Formation: Three types. Only the first two are actually contracts and they different in no way other than the manner in which they are formed.
1. Express Contract
a. Formed by language; oral or written
ii) Bargain/Exchange Rest. §17
2. Implied in Fact Contract: Rest. §4“promise may be stated in words…or may be inferred wholly or partly from conduct”
a. Formed by manifestations of assent other than oral or written language, i.e. by conduct
i) Mutual agreement
ii) Intent to contract
iii) Promise is implied in actions
3. Quasi-Contract or Implied in Law Contract
a. Not contracts at all. Intent of parties to contract does not matter. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the def.
i) Benefit conferred upon D by P
ii) Appreciation by D of such benefit
iii) Acceptance and retention by D of benefit such that it would be inequitable to retain benefit w/o payment
Types of Contracts as to Validity
1. Void Contract: one that is totally without legal effect from the beginning (agreement to commit a crime)
2. Voidable Contract: one that one or both parties may elect to avoid or to ratify (contracts of infants or mentally ill parties).
3. Unenforceable Contract: An unenforceable contract is an agreement that is otherwise valid, but that may not be enforceable due to various defenses extraneous to contract formation, such as the statute of limitations or Statute of Frauds.
Pillars of an Enforceable Contract
When a suit is brought in which one party seeks to enforce a contract or to obtain damages for a breach of contract, a court must first decide whether there was in fact a contract. In making this determination, a court will ask the following three basic questions:
1. Was there mutual assent (offer and acceptance)?
2. Was there consideration or some substitute therefore (promissory estoppel or restitution)?
3. Are there any defenses to creation of the contract?
Was There Mutual Assent?
Mutual Assent Defined
1. Rest (2nd) §17 states that formation of a contract requires that the parties make “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration”
a. Parties manifest mutual assent in a bargaining process of offer and acceptance, ultimately either reaching a deal (a “manifestation of mutual assent”) or breaking off negotiations.
b. Contracts, such as noncommercial transactions and some commercial transactions, can result in contracts even though the parties may not have engaged in a formal bargained negotiation
Rules vs. Rationales
1. Cessante ratione legis cessat ipsalex: If the reason for the law ce
ugh D’s were both joking, this is different than Lucy v. Zehmer because here it was obvious to a reasonable person.
C. Prior Practice and Relationship of the Parties
(a) In determining whether certain remarks constitute an offer rather than preliminary negotiations, the court will look to the prior relationship and practice of the parties involved.
(b) Relationships where the presumption is there is no intent to be bound:
(c) Unmarried couples living with each other are treated as if they are married—no intent to be bound
D. Method of Communication
1. Use of Broad Communications Media
a. The broader the communicating media, the more likely it is that the courts will view the communication as merely the solicitation of an offer (reward offers are exceptions)
(1) Advertisements, etc.
(a) General rule: advertisements, like price quotations, are not offers because they do no t contain sufficient words to commitment to sell, but an invitation to make offers.
(b) However, courts have treated adv as offers where the language of the advertisement can be construed as containing a promise, where the terms are certain and definite, and where the offeree(s) is clearly identified.
E. Industry Custom
Certainty and Definiteness in the essential terms?
Was there certainty and definiteness in the essential terms?
A. Essential Terms: Identity of the offeree; the subject matter; price to be paid; time of payment; delivery or performance; quantity involved; nature of the work to be performed.
1. Does not need to be very specific as long as it contains some objective standard to supply the missing terms.
a. Sometimes harder with new business because output is uncertain.
b. Reasonable range of choices is also okay.
2. Uncertainty not okay if it is a material term
a. If the term is a material term, the offer is too uncertain. The courts will not supply a reasonable term, as the parties have provided otherwise.
B. Price quotations distinguished from offers
1. Frequent business for price quotes. The following are factors in determining if the quote is an offer or not
(a) Quantity: quote will be an offer when it or the request to which it is a response makes clear the quantity. A quotation with “per unit” price, no reference to number of units which the seller is willing to sell at that price is not an offer.
(b) Address: if quote is not addressed to a particular person, but merely part of a general price list: no offer
(c) Use of term “quote” or “offer”: If the proposal itself refers to the fact that it is a quotation (e.g., We quote you apples at 40cents per pound) it is less likely to be an offer. If it says “I offer you,” another story.
(d) Need for further expression of assent: power of acceptance is the offeree, a proposal is not an offer when it reserves to the proposer the power to close the deal.
(e) Reluctance to find a contract: If the existence of an offer presents a close question, the court will generally find that there was a contract.