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Contracts
University of Kansas School of Law
Ware, Stephen J.

CONTRACTS – WARE – FALL 2012

I. GENERAL OVERVIEW

A. General Definition: 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.

B. Governing Law

1. Common Law generally governs contracts

2. Uniform Commercial Code Article 2 governs contracts for the sale of goods

i. The UCC has adopted much of the common law, but where they differ, the UCC prevails in a contract for the sale of goods

3. Mixed Contracts (goods & services)

i. The court will determine which aspect is dominant and apply the law governing that aspect to the entire contract

Bilateral v Unilateral Promises

Bilateral

Unilateral

Offeror’s promise seeks

Offeree’s promise

Offeree’s performance

K formed by

Exchange of promises

Offeror’s promise + offeree’s performance

If offeree does not perform

Offeree in breach of duty to perform

Offeree not in breach because no duty to perform

ii. UNLESS the contract divides payment between goods and services. Then the common law governs the services portion and the UCC governs the sale portion

C. Types of Contracts

1. As to Formation

i. Express Contracts are formed by oral or written language

ii. Implied Contracts are formed by manifestations of mutual assent other than oral or written language

a. i.e., by conduct

b. e.g., if a person sits in a barber’s chair and the barber cuts his hair, a contract has been formed by the parties’ conduct

2. As to Acceptance

i. Bilateral Contracts – Exchange of Mutual Promises

a. Each party is both a promisor and promisee

b. Notice is necessary for acceptance

c. E.g., A promises to sell Blackacre to B for $1,000, and B promises to buy Blackacre at that price

ii. Unilateral Contracts – Acceptance by Performance

a. Promisor promises to pay upon the completion of performance by the promisee

1. Notice is unnecessary unless it is performance that would not normally come to the attention of the offeror

2. The contract is formed upon completion of performance

b. One promisor and one promisee

c. E.g., A promises to pay B $15 if he mows her lawn. B is not obligated to mow (perform), but if he does, A is obligated to pay him $15.

iii. Modern View – Most Contracts are Bilateral

a. Under the Restatement and the UCC, an offer is accepted by promising or by beginning performance, unless language or circumstances clearly indicate otherwise

b. Unilateral Contracts Limited to 2 Circumstances

1. Where the offeror clearly indicates that completion of performance is the only manner of acceptance

2. Where there is an offer to the public (e.g., a reward)

3. As to Validity

i. Void Contract

a. Contract without any legal effect from the beginning

b. It cannot be enforced by either party

c. E.g., an agreement to commit a crime

ii. Voidable Contract

a. Contract that one or both parties may elect to avoid by raising a defense that makes it voidable

b. E.g., defense of infancy or mental illness

iii. Unenforceable Contract

a. Agreement that is otherwise valid, but which may not be enforceable due to various defenses extraneous to contract formation

b. E.g., Statute of Frauds or Statute of Limitations

D. Creation of a Contract

1. 3 considerations for a valid contract:

i. Was there Mutual Assent?

ii. Was there Consideration?

iii. Are there any Defenses to formation?

E. Alternatives To Contract

1. Promissory Estoppel

i. No contract created, but promises reasonably induce action or forbearance on the other party’s part and therefore the promise is held binding when necessary to avoid injustice.

ii. Reliance is enough to require enforcement even though there was no bargain or consideration.

2. Unjust Enrichment

i. Enforcement allowed in cases where it would be unjust to let a party receive a benefit without having to pay for it.

II. FORMATION OF CONTRACTS

A. Basis for Enforcing Promises

1. The Requirement of a Bargain & Fundamentals of Consideration

i. The formation of a contract requires a bargain

ii. Bargain = Mutual Assent + Consideration (§ 17)

a. Reliance is not a requirement, but reliance can sometimes act as consideration

b. Mutual Assent + Reliance ≈ Bargain

iii. Mutual Assent requires each party makes a promise and/or begin to render performance through offer and acceptance

iv. Consideration = anything of value promised to another when making a contract

v. Requirement of Exchange (§ 71)

a. (1) To constitute consideration, a performance or a return promise must be bargained for

b. (2) “Bargained for” if it is sought by the promisor in exchange for his promise & is given by the promisee in exchange for that promise

c. (3)”Performance” can be

1. An act other than a performance

2. A forbearance

3. The creation, modification, or destruction of a legal relation

vi. § 72: Consideration = Any performance which is bargained for EXCEPT

a. The Pre-Existing Duty Rule (§ 73)

1.

A promises B $5K on Monday, Monday A decides not to give B money à no consideration

If either the promisor or the promisee already had a legal obligation to render such performance, it is not consideration in the legal sense.

2. There must be additional consideration for terms added after the contract is already formed

b. UCC § 2-209(1): Sales contracts can be modified without additional consideration

i. Even if the other party merely promises to do exactly what it had previously promised to do

c.

Mills: A took care of B’s son until he died, B promised afterward to pay expenses, but didn’t à Past action

Past Action: ≠ Consideration because performance was complete before the agreement was formed

1. Moral obligation is insufficient

2. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding only to the extent necessary to prevent unjust enrichment (§ 86)

i. Unless the benefit was a gift

d. Gifts:

1. A promise to make a gift is generally unenforceable because it lacks the bargain element of consideration

2.

Kirksey: A told B to move to his area, A put B in comfortable house w/land, after two years required her to leave à no consideration b/c gift

Mere Gratuity/Unsolicited Action ≠ Consideration

3. Even if there is condition in order to receive the gift, there is still no consideration if the condition is not really “bargained for”, unless

4. The promisor imposes a condition occurrence of which will be a benefit to him

5. E.g., Hamer v. Sidway: A promises his nephew (B) $5,000 if he refrains from smoking, drinking, and gambling until age 21. B so abstains. A’s promise was bargained for/supported by consideration because A was trying to obtain something he regarded as desirable

e. Settlement of Claims (§ 74):

1. Forbearance to assert or surrender a claim is not consideration unless

i. The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

ii. The forbearing or surrendering party believes that claim or defense may be fairly determined to be valid

vii. § 79: If there is adequate consideration, there is no additional requirement of

a. A gain, advantage, or benefit to t

v. Zehmer: Zehmer promises to sell farm to Lucy while out at bar. Zehmer claims offer was a joke, but he signed a note and had his wife sign it too. Neither party was too intoxicated to not realize this was a serious transaction.

a. Objective test = Lucy was reasonable when he assumed that this was a serious business transaction.

b. Outward manifestation rather than undisclosed intentions control whether a contract was made.

c. §18 note c: When all parties to bargain knew the intention of transaction was not to be taken seriously, no manifestation of intent. If one party is deceived and has no reason to know of the joke the law takes the joker at his word. May be a claim for fraud or unjust enrichment by virtue of the promise made.

2. The Offer

i.

Not Offer: S: not possible for less than $16K Owen

Offer: B: lowest price for x amount, S reply with price for immediate acceptance; B accepts Fairmount

Offer = Manifestation of willingness to enter into a bargain made as to justify another person in understanding that his assent to that bargain is invited and will conclude it (§ 24)

ii. Must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. The expectation is reasonable if:

a. There was an expression of promise, undertaking, or commitment to enter into a contract as determined by

1. The Language Used

2. Surrounding Circumstances

3. Prior Practice and Relationship of the Parties

4. Method of Communication

i. The broader the communication media, the more likely it is that the communication is merely the solicitation of an offer (exception = reward offer)

ii. Advertisements, etc. are usually construed as mere invitations of offers (prices at which the seller is willing to receive offers) because they don’t contain words of commitment to sell (i.e., “first come, first served”)

iii. Preliminary Negotiations: Solicitation is not an offer, and cannot be accepted. Instead it merely serves as a basis for preliminary negotiations.

iv. Auction Solicitation of offers from audience. Unless without reserve, auctioneer may withdraw the goods from the sale even after start of bid

5. Industry Custom

b.

Last shot: Int. Filter reserved power to send the last proposal to remain offeree and have the final say

There was certainty and definiteness of terms to the extent that the contract could be enforced. Look for

1. Identification of the offeree to justify the inference that the offeror intended to create a power of acceptance

2. Definiteness of Subject Matter because the court can only enforce a promise if it can tell with reasonable accuracy what the promise is

i. E.g., Real Estate Transactions require identification of the land and price terms, Sale of Goods transactions require a certain quantity, Services transactions require a description of the nature of the work to be performed

3. Missing Terms that can be reasonably supplied by the court (using gap fillers)

i. Vague terms cannot be enforced

4. Communication to the Offeree