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Contracts
University of California, Hastings School of Law
Lefstin, Jeffrey A.

TABLE OF CONTENTS
Contracts Introduction: [3]1
Cases – Contracts Introduction: [3]3
Mutual Assent: [275]4
Cases – Mutual Assent: [275]19
Written Manifestations of Assent: [467]26
Cases – Written Manifestations of Assent: [467]35
Multiparty Transactions: [517]37
Cases – Multiparty Transactions: [517]39
Consideration: [601]40
Cases – Consideration: [601]47
Performance & Breach: [797]52
Cases – Performance & Breach: [797]64
Defenses: [933]69
Cases – Defenses: [933]82
Damages for Breach: [59]90
Cases – Damages for Breach: [59]101
Keyed to Barnett, 3rd Edition, 2003.

Contracts Introduction: [3]

Definitions: A K can be defined for most purposes as an agreement that the law will enforce in some way. In general, a K is either: (1) an exchange of a promise for a promise, or; (2) a promise for a performance.

Containing at Least One Promise: A K must contain at least one promise, i.e. a commitment to do something in the future.
Written v. Oral Contracts: The term K is often used to refer to a written document, but for legal purposes, an agreement may be a binding and enforceable K in most circumstances even though it is oral.
Quasi-Contracts: A quasi-K is not a K at all, but is rather the term used by some courts to denote a recovery imposed by law where justice so requires, even though the parties have not made any agreement. See more at Damages à General à Quasi-Contracts.
Implied-in-Law Contracts: This is effectively the same thing as a quasi-K.
Implied-in-Fact Contracts: An implied in fact K is not a real K, but one in which agreement is reached by the parties’ actions, rather than their words.
Assumpsit: Assumpsit is a common law action for the recovery of damages b/c of breach or non-performance of a simple K, either express or implied, and whether made orally or in writing.

Freedom to Contract: The right to K is guaranteed by the 14th amendment of the U.S. Constitution.

Policy: See Printing & Numerical Registering Co. v. Sampson (public policy requires that competent adults should have the utmost liberty of K’ing, and that their K’s, when entered into freely and voluntarily shall be held sacred and shall be enforced) [41].
Supplanting Normal Legal Obligations: People are free to create a K where none would otherwise exist. For example, a doctor promising a cure, despite there being no implied warranty of cure. See Shaheen v. Knight (D doctor liable for breach of K after he performed vasectomy on P and promised it would work, and then P had baby two years later) [8]

Void, Voidable, and Unenforceable Contracts:

Void Contracts: These K’s have no legal effect. Thus, a gambling K might be said to be “void as against public policy” (gambling debts are void in CA). Some courts would say that no K has been formed, rather than that a K is void.

i. Public Policy: Only when a given policy is obviously against the public interest should the court declare it void. K’s that state performance of an illegal act are void as against public policy. Also K’s in restraint of trade (non-compete K, antitrust), immoral acts, and those that impair certain family (status) relations. See Mamlin v. Genoe (court won’t void K for sterilization simply b/c it was done for financial vs. health reasons) [9].

Voidable Contracts: A voidable K is one which one party may at his option either enforce or not enforce. Thus, a minor who has made what would otherwise be a binding agreement, or a person who has been induced to agree by fraud, has the choice of either “avoiding” the K (i.e. acting as if no agreement had ever been made) or enforcing it.
Unenforceable Contracts: An “unenforceable” K is one which does not give an immediate right to judicial relief, but which nonetheless has some legal status. The most important difference btw an “unenforceable” K and a so-called “void” K is that the unenforceable K may be converted into a fully binding K by the act of one of the parties, while a void K may not.

Special Case – Surrogacy Contracts:

Cases: In California (Johnson), assumed that in absence of legislation saying otherwise, they would assume surrogacy is okay. Whereas in New Jersey (Baby “M”) they assume that since there was no legislation, that surrogacy must be unenforceable.

i. Surrogacy K Void: In the Matter of Baby “M” (Sterns entered into surrogacy K with Mrs. Whitehead, where using Mr. Stern’s sperm and Mrs. Whitehead’s egg, they would artificially conceive a child. Stern’s agreed to pay $10k to Whitehead to vacate parental rights. Whitehead tried to retain custody of child) [19, 30] ii. Surrogacy K Valid: Johnson v. Calvert (Calverts have embryo created from their own egg and sperm. Is implanted for surrogacy in Johnson. Paid $10k to vacate parental rights. Johnson tried to retain custody of child) [45]

Policy Considerations:

i. Statue Relationships: Relationships include parent/child, teacher/student, etc. For the most part, K law has superseded requirements of status relationships [12].
ii. Enforcing Personal Services K’s and Slavery: It can be argued that specific performance of a personal services K (surrogacy) would violate the 13th Amendment, which states that “Neither slavery nor involuntary servitude… shall exist within the United States.”
iii. Courts Power Over Children: The doctrine of parens patriae grants the inherent power and authority of the state to protect persons who are legally unable to act on their own behalf.

Freedom to Contract: Some courts argue that surrogacy K’s are valid and not against public policy. Since people have the freedom to K, they should be able to K their parental rights away. See In the Matter of Baby “M” (trial court) [19].
Void as Against Public Policy: Other courts reject surrogacy as being against public policy. See In the Matter of Baby “M” (NJ supreme court holding that surrogacy K is illegal and invalid. Surrogacy is okay when mother is doing it as a volunteer, for no money, and is not bound to surrender the child) [30].
Parental Rights Indeterminate: When the “natural” mother cannot be determined, the courts hold that the intended mother per the surrogacy K is the “natural mother,” regardless of who gestated the child. See Johnson v. Calvert [45].

Economic Analysis of Contract Law: Some courts focus on economic analysis when analyzing K law. The central tenet is that “efficiency” should be a major objective of K law. This means keeping transaction costs low (e.g. minimal litigation) and allocating resources to their most highly valued uses.

Cross-References: See below:
Damages à Liquidated Damages à General à Efficient Breach.
Damages à Expectation Damages à Cost of Completion vs. Decrease in Value.

Sources of Contract Law:

Uniform Commercial Code: In most states, most aspects of K law are governed by case law. But in every state except Louisiana, sales of goods are governed by the UCC. In K law, we look at Article 2, which deals with sales of goods.

i. Goods: Article 2 only applies to the sale of goods. Good are considered anything tangible and movable. They are not services, property (and associated structures), money, securities, stocks, bonds, contractual legal rights, or intellectual property.
ii. Common Law Controls: Even in a transaction involving the sale of goods, if the UCC is silent as to a particular question, the case law controls. See UCC §1-103 [78].
iii. Mixed Goods/Services Contract: If the K is one for both goods and services, UCC Article 2 will only govern if the sale of goods predominates.

Restatement of Contracts: The Restatement (Second) of Contracts, published in 1980, has been very influential in K law.

Cases – Contracts Introduction: [3]

Shaheen v. Knight [8]

Court of Common Pleas of Lycoming County (1957)
Facts: D doctor liable for breach of K after he performed vasectomy on P and promised it would work, and then P had baby two years later.
Issue: Can there be a special K btw patient and doctor guaranteeing a specific result from treatment?
Rule: Yes, doctor and patient can enter into K for specific performance.
Analysis: Under Penn. law, there is no implied “warranty of cure” by physician – Rejected by judge. “A doctor and his patient… are at liberty to K for a particular result. If that result be not attained, the patient has a cause of action for breach of K… Damages in a K action btw doctor and patient are restricted in some JX.” [10] Note that in 1975, Penn. passed a statue restricting “warranty of cure,” which would overturn this ruling.

In the Matter of Baby “M” [19]

Superior Court of New Jersey (1987)
Facts: Sterns entered into surrogacy K with Mrs. Whitehead, where using Mr. Stern’s sperm and Mrs. Whitehead’s egg, they would artificially conceive a child. Stern’s agreed to pay $10k to Whitehead to vacate parental rights. Whitehead tried to retain custody of child.
Issue: Are surrogacy K’s valid and enforceable?
Rule: Surrogacy K’s are enforceable and not against public policy.
Analysis: There should be freedom of K, and Whitehead entered into K with her eyes open. Custody: for Sterns. Parental Rights: for Sterns

In the Matter of Baby “M” [30]

Supreme Court of New Jersey (1988)
Facts: As above.
Issue: Are surrogacy K’s valid and enforceable?
Rule: Surrogacy K is illegal and invalid. Surrogacy is okay when mother is doing it as a volunteer, for no money, and is not bound to surrender the child.
Analysis: “We invalidate the surrogacy K b/c it conflicts with the law and public policy of this State.” [31] Custody: Affirmed (for Sterns). Parental Rights: Reversed (for Whitehead).

Johnson v. Calvert [45]

Supreme Court of California (1993)
Facts: Calvert’s are married couple who have embryo created from their own egg and sperm. Is implanted for surrogacy in Johnson. Paid $10k to vacate parental rights. Johnson tried to retain custody of child.
Issue: In complete surrogacy births (gestator has no genetic connection to child), who is the legal mother? Are surrogacy K’s valid and enforceable?
Rule: The “

d §26 [302].

i. Solicitations to Buy: Notification of price is not offer to sell. See Nebraska Seed Co. v. Harsh (No offer made by D when he sent general letter to P informing of desired price for seed, but lacking specific terms) [291].
ii. Letters of Intent: Letters of intent are generally only nonbinding records of preliminary negotiations. See Empro Manuf. Co. v. Ball-Co Manuf., Inc. (No K formed when parties signed letter of intent for sale of D’s business) [306].

Advertisements: Advertisements are not ordinarily intended or understood as offers to sell. This is b/c they do not contain sufficient words of commitment to sell. See Rest. 2d §26 cmt. b [297] and Leonard v. Pepsico (No offer made by D’s joking advertisement to give away Harrier Jet) [294].

i. Specific Terms: But if the advertisement contains specific words of commitment, especially a promise to sell a particular number of units, then it may be an offer. HYPO: “100 jackets at $26 apiece, first come first served, starting Saturday,” is so specific that it’s probably an offer.
ii. Words of Commitment: Look for words of commitment – these suggest an offer. HYPO: “Send 3 box tops plus $2 for your free t-shirt,” is an offer even though it is also an advertisement, b/c the advertiser is committing himself to take certain action in response to the consumer’s action.

Offers of Reward: The offeror of a reward is liable to all those who successfully perform. See Leonard v. Pepsico (Courts have consistently found “prove me wrong” and reward offers to be binding) [342].
Auctions: When an item is put up for auction, this usually is not an offer, but rather a solicitation of offers (bids) from the audience. So unless the sale is expressly said to be “without reserve,” the auctioneer may withdraw the goods from the sale even after the start of bidding. See UCC §2-328(3) and Rest. 2d §28.

Acceptance:

Who May Accept: An offer may be accepted only by a person in whom the offeror intended to create a power of acceptance. See Rest. 2d §29 [302].
Offeree Must Know of Offer: An acceptance is usually valid only if the offeree knows of the offer at the time of his alleged acceptance.

i. Rewards: Thus, if a reward is offered for a particular act, a person who does the act without knowing about the reward cannot claim it.

Method of Acceptance: The offeror is the “master of his offer.” That is, the offeror may prescribe the method by which the offer may be accepted (e.g. by telegram, letter, etc.)

i. Where Method Not Specified: If the offer does not specify the mode of acceptance, the acceptance may be given in any reasonable method. See Rest. 2d §30(2) [348].
ii. Unilateral Contracts: These are frequently offers of reward.
1. Method of Acceptance: An offer for a unilateral K is accepted by full performance of the requested act. See Carlill v. Carbolic Smoke Ball Co. (K formed when D placed advert saying it would pay £100 to anyone who took D’s medicine and got influenza and P bought medicine and got sick) [329].
2. Notice of Acceptance: In a unilateral K, notice of acceptance (via completion) is not needed unless the offer so requests. But if the offeror won’t realize the offer is accepted (i.e. won’t know offeree completed act), than the offeree must give notice of his acceptance after he has done the requested act. If he does not, the K that was formed by the act is discharged. See UCC §2-206(2) [303] and Rest. 2d §54 [342].
iii. Offer Invites Either Promise or Performance: If the offer does not make clear whether acceptance is to occur through a promise or performance, the offeree may accept by either a promise or performance. See Rest. 2d §32 [348]. But the older view is that bilateral K’s could not be accepted by performance unless specified. See White v. Corlies & Tifft (No K formed when D made offer and P simply started performing without notifying D first) [344].
Shipment of Goods: For instance, if a buyer of goods places a “purchase order” that does not state how acceptance is to occur, the seller