Contracts Outline

Contracts – Harrison Fall 2015

Overview:

1. SOURCES OF LAW

1. Common Law

o Case law has evolved with the assistance of restatements

2. UCC – Uniform Commercial Code – applies only to the sale of goods (other than securities and leases)

o Functions as a state statute in 49 states (no LA)

o If the primary function of the K is to provide a service, refer to CL

o Set of default rules; parties can agree to use a different system

o Don’t mix CL and UCC; chose one when answering questions

3. Restatement 2nd of Contracts

o Scholars and Attorney’s attempt to concisely state the CL

o Not binding, but highly persuasive authority

2. TYPES OF CONTRACTS

o Express K: forms when offer and acceptance are present; each party expressed what they wanted

· Can be oral or written; must be explicit

o Implied-in-Fact K: manifestation of assent by conduct, not given orally or in writing, but both parties intend to enter into a K; real contract without expressed indicators

· Example: go to dinner 5 days in a row and order coffee; day 6, you don’t order it but they put it in front of you anyway and you drink it, a K has been formed

o Quasi (Implied-in-Law) K: legal fiction – NOT A CONTRACT; law creates the obligation to pay because it is the fair thing to do and it provides for a “contract-like” remedy

· There is no promise; one party bestows a benefit on another with the reasonable expectation of being compensated

· Courts create to avoid unjust enrichment

– Collano: D sold a home to a decedent who ordered shrubs and never paid for them; P (gardener) sued claiming unjust enrichment; no quasi K because the P cannot simply substitute one debtor for another; must sue decadent’s estate to collect money

· Damages are given in restitution – “reasonable” value determined by the person giving performance

– Dr. cares for unconscious patient and incurs expenses

· Usually does NOT apply to relatives

3. BILATERAL V. UNILATERAL

o Bilateral: both parties promise something, often in the form of a conditional promise; promise for a promise

· Example: “I promise to give you $5,000 at the closing, if you promise now to give me the deed”

· Traditionally became enforceable when both parties promised to perform, but now UCC and restatement have evolved to say that a bilateral K can occur when one party actually completes the performance

o As a result, beginning performance does not necessarily create a bilateral K

· Example: “I will give you $25 is you promise to mow my lawn tomorrow”

o Offeror might have protection if offeree stops in the middle of performing under R.62(1) (pg.74) – the offeree has the opportunity to choose between acceptance by promise OR performance

o Thus, under R.62(2) (pg. 74) such an acceptance operates as a promise to render complete performance – would be able to get damages for the difference in costs in entering into a new K

o I hire a new guy to do it for $50, breaching party owes $25

o The offeror does not have to have paid the $25 yet for this to be valid (most K’s actually work this way, you pay after receiving the benefit)

o R.62 (pg. 74) – results in only bilateral K’s

o Unilateral: only one party promises to perform and the other must accept by performance in the manner specified by the offer; offeror’s promise induces the offeree to act – R.45(1) (pg. 61)

· The offeree does not make a promise, but instead simply acts

· Example: “I will give you $25 if you mow my lawn tomorrow”

o Does not matter if you accept and respond with a promise – only matters if offeror requires a promise on offeree’s behalf

· Offer is irrevocable once performance starts – revocation prevented by acceptance

o When does performance start? – make an argument; in this case, probably when you begin mowing

· BUT once offeree begins performing, offeree can stop at any time

o He can stop mowing the lawn at any time without negative consequences – but he won’t get paid

· Offeror can control this – R.62 (pg. 74)

o Unilateral Offers to the Public

· Advertisements: usually not K’s

o Example: “We have 2,000 boxes of junk for sale.” – not K – solely and INVITATION to make an offer

o Exception: if the ad is “clear, definite, and explicit, and left nothing open for negotiation” (Lefkowitz)

o First come, first served – is an offer is you are there first

· Rewards: cannot be claimed if you are unaware, must have mutual reciprocal inducement

o Public officials cannot claim rewards for completing acts in the scope of their duty – a cop can’t claim a reward for a missing child

· Offers Made to Multiple Parties: can be enforced if each of the offerees reasonably relied on them

o Bilateral v. Unilateral Contracts: if K’s terms are ambiguous as to whether K is bilateral (promise to perform) or unilateral (performance), the offeree chooses – R.32 (pg. 48)

· Bilateral: offeree must finish performance

· Unilateral: offeree can stop at any time

– Offeree must inform the offeror that he has begun performance, or else the offer can be revoked

4. OBJECTIVE THEORY OF CONTRACTS

· Determines when mutual assent has occurred; when the parties come to an agreement on the terms

· What would a reasonable person in the position of each party believe based on the other party’s words and conduct, regardless of what each party may have subjectively (actually) intended?

o Conduct – not the parties internal idea of intent – is used to determine actual intent; actions speak louder than words

o Both parties outwardly manifested a desire to buy or sell

· 2 Prongs:

1. A reasonable person in the position of the promisee must believe the other party intended to be bound AND

2. The promisee must