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Contracts
University of Illinois School of Law
Tabb, Charles J.

Contracts Outline Revised – Tabb 2010

Quick Charts

Is there a K?

Is there a valid offer? (look under “Mutual Assent by Offer”)

NO: probably no K; consider the possibility that the parties’ later actions may have recognize the existence of a K, in which case the court will enforce that K

K will NOT be found if agreement is unduly indefinite

UNLESS court supplies implied/missing terms

UCC: fill in price, place for delivery, time for shipment, time for payment – as long as parties intended to make a K

Non-UCC: supply the missing term on a reasonable basis if intent to bind is found

YES: next question – An offer is clear, definite, and explicit, and leaves nothing open for negotiation (Lefkowitz case)

Is there a valid acceptance – by performance (unilateral) or promise to perform (bilateral)? (look under “Mutual Assent by Acceptance”)

YES if…

offeree had right to accept

knew of offer at time accepted

performed/made promise

Vary from offer by adding terms/ changing terms

YES: sale of goods? IF sale of goods, acceptance is effective – unless conditional on other party’s assent

NO: mirror image rule applies under CL. Under modern view, proposed changes or additions do NOT invalidate the acceptance unless conditional on assent to new terms

NO: at moment of acceptance was offer still in effect

YES: valid

Not sure: irrevocable up to the moment of acceptance?

NO: rejection/counter offer, lapse of time, revocation, death/incapacitation, condition of acceptance illegal?

YES: not valid acceptance

NO: (look to answer above) AND mirror image rule/indefinite or missing terms

YES: next question for enforceability of K, but consider if the power of acceptance was terminated

Power of acceptance terminated by

Revocation – was offer irrevocable

Rejection

Counter offer

Lapse/expiration

Death/incapacity

Is there consideration – bargain or detriment/benefit elements?

NO: type of promise that would be binding w/o consideration? (promissory estoppel, promissory restitution, restitution)

YES: there is a K

YES if…

Promisor giving his promise in exchange for the promisees return promise or return performance (bargain element) AND

*Output, Requirements & Exclusive Dealings– duty of good faith/duty of best effort (look in “implied contract terms”).

Promisee either done/promised to do something that he did not have to do OR refrained from doing something he had the legal right to do (detriment element)

YES: consideration for promisor’s promise.

MAYBE: analyze pre-existing duty rule & illusory promise (one can do whatever they want with no consequences) – consideration invalid)

Terms of the K

Do terms of acceptance vary from the offer – imperfect acceptance?

YES: go through Battle of the Forms IF sale of goods OR mirror image rule

NO: next question

Introduce evidence to supplement or contradict written K?

YES: apply Parol Evidence Rule

NO: next question

Issue of interpretationof K – show meaning of term in K?

YES: apply maxims of interpretation – if conflict concerns meaning of term, it may be that there was no mutual assent and therefore no K; 4 corners v. traynor contextual approach

NO: next question

Enforcement of K

Can the K be enforced?

Statute of Frauds apply (is their contention over a written agreement?)

YES: unenforceable unless written

NO: next question

DEFENSES: Void/voidable due to mistake, illegality, duress, misrepresentation, unconscionability, incapacity?

YES: if void, cannot be enforced; if voidable, party has option to cancel the K – look to remedies

NO: next question

EXCUSE: Discharged from duty to perform as a result of impossibility, impracticability or frustration of purpose?

YES: cannot be enforced

NO: next question

Obligations of K subject to conditions?

YES: conditions been satisfied or excused – substantial performance?

YES: K enforceable

NO: K unenforceable

NO: contract is enforceable

Breach of K? – Efficient Breach Hypothesis: p. 1037: the law should be structured to encourage such efficient breaches while deterring inefficient breaches. Willfulness of a breach does not affect damage calculations, so a party may purposely breach without increasing damage exposure, except in the rare circumstances that give rise to liability for punitive damages.

K been discharged?

YES: no breach; only if a mutual rescission OR unilateral rescission of the innocent party (victim of fraud, duress, mistake or breach of the other party)

NO: next question

Party committed a total/material breach – party has NOT substantially performed her obligations (includes anticipatory repudiation)

YES: non-breaching party is entitled to cancel the K and to recover damages (go to remedies chart)

NO: next question

Party committed partial breach – party substantially performed but nonetheless failed to comply perfectly with the contract’s requirements?

YES: non-breaching party may NOT cancel K, but may recover damages (go to remedies chart)

NO: go to remedies

Remedies Available

Equitable remedies?

YES: determine which apply & IF K for sale of goods apply UCC damages for sales K (specific performance & injunction)

NO: next question

Sale of goods?

YES: apply UCC damages for sales K (specific performance & injunction)

NO: next question

Expectation (“benefit of the bargain”) damages?

YES: formula…

+Loss in value

Cost to complete

Difference in value

+Other loss

Incidental damages

Consequential damages

-Costs avoided

-Loss avoided

Duty to mitigate

NO: next question

Reliance damages(lost profit cannot be shown with certainty or quasi-contracts)?

YES:reimburse the aggrieved party for expenses incurred in preparing for or in performing the K (expected profit not included).

NO: next question

Restitution damages(prevent unjust enrichment)?

YES: either “in kind” or “in $”

Punitive damages– generally not allowed

Introduction

Contract:promises which the STATE can enforce via law

Promise:a manifest commitment in exchange for something or some behavior (does not excuse obligor’s own duty to perform

Underlying Principles & Assumptions of Contract Law

Freedom of Contract: people should be allowed to decide for themselves what responsibilities to take on by contract, with only the smallest of restrictions

Predictability and Security: parties operate more effectively when they can comfortably predict and order their lives according to the legal implications of their actions.

Autonomy: parties to a contract must delineate their own choices and not ask the court to choose for them

Commercial Reasonableness: rules should reflect the way parties actually conduct business (custom)

Fairness: parties should be protected from being misled, unreasonably pressured, or otherwise led into contracts that do not represent their true choices or that shock conscience.

Sources of Contract Law & Authority

Judicial Opinions: K law is CL, not statutory. Every state but Louisiana, sales of goods are governed by a statute.

Restatement of the Law (ALI)

Restatement of Contracts: developed by the ALI due to uncertainties in the law. It is NOT binding, it is persuasive. Restates commonly accepted views of the law.

Statutory law/legislative enactments

UCC = Uniform Commercial Code (**binding)

CISG = Convention on the International Sale of Goods

UNIDROIT = Guiding principles of law for contracts

Consideration: something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances; K will not be enforceable unless it is supported by consideration.

Consideration as Benefit (promisor) or Detriment (promisee):Any benefit a

ification. The reason for modification must rest in circumstances not “anticipated” as part of the context in which the contract was made, but a frustrating event may be unanticipated for this purpose if it was not adequately covered, even though it was foreseen as a remote possibility. When such a reason is present, the relative financial strength of the parties, the formality with which the modification is made, the extent to which it is performed or relied on and other circumstances may be relevant to show or negate imposition or unfair surprise.

**Pre-existing duty rule– a requirement for consideration to exist for modification of the duties of both parties…if one does or promises to do what he is already legally obligated to do, or if he forebears or promises to forebear from doing something which he is not legally entitled to do, he has NOT incurred a “detriment” for purposes of consideration

Watch out for non-exclusive dealing turning into exclusive dealing (incurs duty of best effort) – what does exclusive mean?***

UCC (sales of goods) – abolishes pre-existing duty rule; an agreement modifying a contract needs no consideration to be binding, but requires good faith and no-oral-modification clause must be complied with.

Modification– agreement to modify K for sole benefit for one party, modification will be unenforceable at CL, for lack of considerationUNLESS (restatement) the modification is fair and equitable in view of circumstances not anticipated by the parties when K was made (i.e. construction/garbage man case)

Liquidated Debt- A creditor can accept anything in satisfaction of a liquidated debt except a lesser sum of money (i.e. realtor case w/ promissory note)

Doctrine of Duress– money/exchange is returnable if consideration is based in duress

Alternatives to Consideration: Promises binding w/o consideration

Alternative to consideration…Promissory Estoppel– an alternative basis for enforcing promises if the promisee foreseeably and reasonably relies on the promise to her detriment; informal promises for which there was no bargained for exchange but which may be enforceable because of antecedent factors that caused them to be made or bc of subsequent action that they caused to be taken in reliance. Rest.2d.90 “A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise”

Elements of Promissory Estoppel**

Promise

must be clear & definite

Promisor expects reliance

Reliance of a definite & substantial character

NOT binding if unreasonable

Inducesactual & reasonably foreseeable reliance by promisee (detrimental)

Must shape the thinking of promisee

Enforce to avoid injustice?

Remedy?

Possible applications

Promise to make a gift– enforce promise to make gift, where the promisee relies on the gift to his detriment or is made in writing

Charitable subscriptions– written promises are binding w/o consideration; oral promises are unenforceable UNLESS charity relies on promise to its detriment

Gratuitous bailments & agencies- take care of another’s property or carry out an act as another’s agent.

Offers by sub-contractors– where a sub-contractor makes a bid to a general contractor, and the latter uses the bid in computing his own master bid, the PE doctrine is used to make sub-bid temporarily irrevocable.