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Contracts
University of California, Hastings School of Law
Prince, Harry G.

Contracts – Prince – Fall 2009
 
TABLE OF CONTENTS
I. FORMATION: BASES OF PROMISSORY OBLIGATION…………………………………………………………………………….2
OFFER + ACCEPTANCE…………………………………………………………………………………………………………………………………………….2
LIMITING POWER OF ACCEPTANCE………………………………………………………………………………………………………………………3
AGREEMENT TO AGREE………………………………………………………………………………………………………………………………………….4
UNILATERAL CONTRACTS………………………………………………………………………………………………………………………………………4
CONSIDERATION……………………………………………………………………………………………………………………………………………………..5
PROMISSORY ESTOPPEL………………………………………………………………………………………………………………………………………..6
RESTITUTION………………………………………………………………………………………………………………………………………………………….7
PROMISSORY RESTITUTION………………………………………………………………………………………………………………………………….8
STATUTE OF FRAUDS……………………………………………………………………………………………………………………………………………..9
II. TERMS / INTERPRETATION…………………………………………………………………………………………………………………11
PAROL EVIDENCE RULE……………………………………………………………………………………………………………………………………….12
IMPLIED TERMS…………………………………………………………………………………………………………………………………………………….14
THE OBLIGATION OF GOOD FAITH……………………………………………………………………………………………………………………..15
WARRANTIES…………………………………………………………………………………………………………………………………………………………16
III. PERFORMANCE / BREACH / EXCUSE…………………………………………………………………………………………………18
UNENFORCEABILITY: INCAPACITY…………………………………………………………………………………………………………………………………. 18
DURESS AND UNDUE INFLUENCE……………………………………………………………………………………………………………………………………..20
MISREPRESENTATION / NONDISCLOSURE…………………………………………………………………………………………………………………….22
UNCONSCIONABILITY…………………………………………………………………………………………………………………………………………………………. 24
PUBLIC POLICY……………………………………………………………………………………………………………………………………………………………………….25
EXCUSES………………………………………………………………………………………………………………………………………………………………….26
EXCUSE: RELEASE FROM DUTY: MISTAKE………………………………………………………………………………………………………………………26
EXCUSE: RELEASE FROM DUTY: CHANGED CIRCUMSTANCES…………………………………………………………………………………..27
EXCUSE: RELEASE FROM DUTY MODIFICATION……………………………………………………………………………………………………………28
RIGHTS & DUTIES OF 3RD PARTIES……………………………………………………………………………………………………………………29
BREACH/CONSEQUENCES OF NONPERFORMANCE…………………………………………………………………………………………..30
EXPRESS CONDITIONS………………………………………………………………………………………………………………………………………………………….30
MATERIAL BREACH………………………………………………………………………………………………………………………………………………………………31
ANTICIPATORY REPUDIATION §251, 2-609 UCC…………………………………………………………………………………………………………..32
IV. REMEDY…………………………………………………………………………………………………………………………………………………33
EXPECTATION DAMAGES (§347)…………………………………………………………………………………………………………………………33
NONRECOVERABLE DAMAGES…………………………………………………………………………………………………………………………….35
RELIANCE DAMAGES……………………………………………………………………………………………………………………………………………..36
RESTITUTIONARY DAMAGES……………………………………………………………………………………………………………………………….37
EQUITABLE RELIEF / SPECIFIC PERFORMANCE………………………………………………………………………………………………..38
 
I. FORMATION: BASES OF PROMISSORY OBLIGATION
o   Need Offer (terms sufficiently specific? offer indicate parties’ intent to be bound?)
o   + Acceptance (assent to terms exactly as offered? acceptance made according to offer’s instructions? w/in time specified?)
o   + Consideration
o   OFFER
o   (§24): manifestation of willingness to enter into bargain, made so as to justify other person understanding that his assent is invited and will conclude it
o   Existence of K where written memorial contemplated (§27): when written memorial of manifestations of assent that are in themselves sufficient to conclude a K will not be prevented from forming a K
o   Open-price term (§33, UCC 2-204): party intended to be bound despite no price term; prevent party from opportunistically getting out of K
o   ACCEPTANCE
o   (§50): manifestation of mutual assent to terms made in manner invited
o   Needs to be a meeting of the minds
o   “Last shot” rule: last offer before performance is the acceptance of K; party impliedly assents and accepts counter-offer by conduct indicating lack of objection
o   Mirror image rule: acceptance has to be mirror-image of offer but difficult to determine whether acceptance is mirror image or not (just say yes and we have a deal)
o   Preliminary negotiations (Restatement §26): not offer if person to who it is addressed knows or has reason to know that person making it does not intend to conclude a bargain until further manifestation of assent; not offer if party reserves right to speak again
o   Mailbox rule: acceptance of offer is effective upon dispatch; today, view is a “reasonable” method of acceptance effective upon dispatch (but remember; offerror is master of offer)
o   Counter-offer: counter-offer is a rejection of the current offer
o   Intention to be bound: Objective theory of contract
o   what to look at to determine if an agreement is final; whether the agreement is:
§ 1) in writing?
§ 2) many or few details
§ 3) small amounts of $?
§ 4) requires formal writing?
§ 5) whether formal written doc contemplated at end of agreement?
·         Ray v. Eurice Bros 20 bishops: F: P asks D to make house; estimate and bids back and forth; D doesn’t read final draft; did not know specific demands of Ray; intent not essential; R: 20 bishops theory: doesn’t matter if 20 bishops testify; he signed it; outward manifestation more important for K than inner meanings; H: Court holds D bound by signature and breached K
·         Lonergan v. Scolnick: F: D posts ad in paper selling land; P responds but D says form letter; P responds D says must act fast; D sells land to 3rd party; R: Restatement §26: promise not offer if no intent as expression of fixed purpose; H: court holds no contract b/c correspondence just queries, not intended as definite offer; further assent was required by D
·         Izadi v. Machado Ford: F: D put ad in paper saying bring any car $3k trade-in but small print says just two cars; P tries to buy car but denied; P must have relied on ad; R: normally advertisements are invitations for offers and need more assent; H: court holds reasonable to hold was an offer for $3k trade in and was an offer and D pulled bait and switch
·         Normile v. Miller: F: Ps shown house for sale; Ps prepared written offer but D then changed terms (increase earnest $ and down payment) and P balked; P thought off market but sold to 3rd party; offerror is master of K; R: valid K only when parties assent to same thing and meeting of minds; Restatement §26, not offer if speaker reserves right to speak again; H: court holds D made counter offer, no consideration by P, no

P sells land to 3rd party; when P goes to D’s house D immediately says “I revoke”; R: the walk across the bridge isn’t complete until the money is actually exchanged; H: court holds that D’s letter initiated a unilateral K; b/c D immediately revoked offer before K was completed offer canceled and void
§ Cook v. Coldwell Banker: F: D announced bonus program to end in Sept.; in Sept. P had $32,400 in commissions, but D changed bonuses and said agent had to be still working there in March for bonus; P quit end of year D refused payment of $17,391 bonus; R: offerror may not revoke offer where offeree has made substantial performance; unilateral K lacks consideration for want of mutuality, but when promisee performs consideration supplied and K enforceable; Restatement §45; H: court held P given consideration and bonus program induced P to remain with D, therefore decision affirmed; P receives bonus
 
CONSIDERATION
o   Consideration(Restatement §71): for consideration, performance or return promise must be bargained for; bargained if sought by promisor in exchange for promise and given be promisee in exchange for promise; performance may consist of a) act other than promise; b) forbearance; c) creation, modification or destruction of legal relation);
o   Bargained for benefit to the promisor or detriment to promisee
o   Question of bargain v. gift depends on motives and whether promisor is receiving any sort of benefit (mutual inducement)
o   If act is consideration then promise to do that act is consideration
o   PAST CONSIDERATION IS NOT CONSIDERATION
o   Adequacy of Consideration (Restatement §79): no requirement of equivalence in exchange, or mutuality of obligation, or gain, advantage or benefit to promisor or detriment to promisee; illusory promises not consideration
o    Hamer v. Sidway: F: Uncle says to nephew if refrain from bad habits would pay $5k when 21; nephew assents and performs conditions; uncle holds money in bank but dies; nephew transfers rights to $ to Hamer; R: forbearance can be consideration; H: nephew gave up legally entitled rights, therefore consideration
o    Pennsy Supply v. American Ash: F: P does paving work for construction project; D offers free AggRite, hazardous material, costly to dispose of, and P uses AggRite but pavement cracks soon after; P asked D to remove AggRite, but refused; R: promise induced detriment and detriment induced promise (mutual inducement); H: D doesn’t pay disposal costs and P gets AggRite therefore consideration; court holds that there was a breach of warranty; reverse
o    Dougherty v. Salt: F: aunt promised boy $3k; when note nothing but unconditional gift; R: a gratuitous gift does not have consideration and is not enforceable; H: no consideration; note voluntary and unenforceable promise; neither side relied on gift; aunt not bargaining for anything; holds for aunt’s estate
o    Batsakis (D) v. Demotsis (P): F: D asked for loan of $2k during WWII, but received equiv. of $25; P suing for $2k; is D obligated to pay P for money didn’t receive but assented to paying in K?; R: not issue of fair exchange; D received exactly what asked for; mere inequality of consideration not determinate of valid K §79; H: court holds for P for $2k
o   Plowman v. Indian Refining Co.: F: 18 workers told you are fired, but receive 1/2 salaries until died; letter sent to employees recounting conversation but not listing end time; R: K requires consideration, something given for a promise or in reliance on promise; something done before promise can’t be legal consideration; H: going to office and picking up checks not consideration; merely gratuitous arrangement, therefore void as K
o   Contracts without Consideration
§ Option K (Restatement §87): option contract must be in writing; offer which offerror should reasonably expect to induce action or forbearance on offeree and which does induce such action or forbearance is binding as an option contract in order to avoid injustice