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Contracts
University of North Carolina School of Law
Weidemaier, W. Mark C.

Contracts
UNC Law
Weidemaier
Spring 2012
 
 
1. Is there a promise?
2. If so, is that promise enforceable?
·         Formalities
·         Promise + Consideration
o   Mutual manifestation of assent?
o   Was an offer made? (not necessary)
o   Was the offer accepted?
o   Was there consideration?
o   Was consideration adequate?
·         Reliance
o   Foreseeable reliance?
o   Actual reliance?
o   Enforcement necessary to prevent injustice?
·         Unjust Enrichment
o   Did promisee confer value on promisor that is greater than any benefit the promisee got from promisor?
o   (when no promise actually made)
3. If so, what was promised (INTERPRETATION), and was it kept (BREACH)?
·         Interpretation
o   Ambiguous and vague terms?
o   Gaps in terms?
o   Forms and later arriving terms?
o   Parol evidence? Mistake in integration?
·         Breach
o   Duty of Good Faith Performance
o   Conditions
4. Is there a defense?
·         Void vs. Voidable Contract
o   Defenses affecting assent
§  Incapacity
§  Duress
§  Undue Influence
§  Mistake
§  Misrepresentation
o   Remedies in Avoidable Contracts
o   Defenses based on Unconscionability, Law and Public Policy
5. If not, what remedy?
·         Common Law Damages
o   Expectancy
o   Reliance
o   Restitution
·         Damages if UCC Applies
o   Buyer’s remedies / Seller’s Remedies
·         Limitations to Remedies
o   Foreseeability of Harm
o   Certainty of Harm
o   Avoidability of Harm
o   Stipulated Damages Clauses: “Contracting Around” Default Rules
·         Specific performance
A. FORMALITIES
 
1.  Before
·         Used to be that a promise sealed and in writing was enforceable 
o   Good evidence that promise was made and terms of promise
2.  Now
·         Now courts rarely enforce promises just b/c they have formalities
·         Rule
o   Courts don’t enforce promises just b/c they’re made under formal circumstances (written K under seal)
o   Except there are a couple circumstances where it still matters whether you’ve made promise in formal circumstances
§  Circumstances where someone made promise – we’re pretty sure they made promise, deliberated a lot
B. PROMISE + CONSIDERATION
1.  Were there mutual manifestations of assent?
a.       Mutual assent is the basis of a contract.  Each party must intend to enter the contract and must agree with the other to do so on mutually acceptable terms.  A manifests assent if:
o   Reasonable person would understand that an offer was made (that A’s conduct was manifestation of assent)
o   Recipient/ offeree has to in fact understand that an offer was made (that B in fact understood it that way)
o   Ask:  Did party who’s being sued who allegedly broke their promise behave in a way that reasonably led the other party to believe contract had been formed?
b.      Policy behind assent
o   Contractual obligation should not be imposed on someone who did not in fact agree to be bound
c.       Rest. 17: Requirement of a bargain
o   In order to have contract, 1- need a bargain in which there’s 2- mutual manifestations of assent to exchange and 3- consideration (broad category)
o   Promises supported by bargains are likely to be enforced; those not supported by bargains are not likely to be enforced
o   Bargain theory of consideration
§  Substantive component: promisor received something of substance from the promisee
ú  Could be anything – just must be of some substantive value to the promisee
§  Reciprocity component: one party has to give whatever they are giving to the other in order to induce a return promise or act from the other party
o   Marvin v. Marvin
§  Facts: M promised to support woman; she promised to quit career/ become housewife
§  Rule:  bargain theory of consideration
ú  Sub component: they both promised things – companionship/ support
ú  Rec component: woman didn’t give companionship to induce man to support her; they’re already in a relationship (can’t act to induce a party to give something if they’re already giving it).  So, no K here
d.      Rest. 22: Mode of assent – offer and acceptance
o   The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties
o   A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation can’t be determined
e.       Rest. 18: Manifestation of mutual assent
o   Can manifest assent when each party promises or begins to renders a performance
f.        Rest. 19: Conduct as manifestation of assent
o   Manifestation of assent may be made wholly or partly by written or spoken words or by other acts, or by failure to act
o   Conduct not effective manifestation of assent unless
§  Party intends to engage in the conduct and
§  Knows/has reason to know the other party will infer assent from conduct
o   Conduct may manifest assent even without party’s intent to assent
§  Contract may be voidable for duress, fraud, mistake, or other invalidating case
g.       Embry v. Hargadine
o   Facts: employee thought he was reengaged by McK who said go ahead you’re all right
o   Rule: Secret intention doesn’t matter.  Same as restatement rule.  2 part test:
§  Would reasonable person understand a commitment was made?
ú  Focus on words and conduct of promissor.  Doesn’t matter what he thought; use reasonable person standard
§  If so, did this person so understand?
ú  What did promisee actually think?  Doesn’t matter what promissor thought.
h.      Lucy v. Zehmer
o   Facts: Zehmer trying to say bar negotiation on check was joke; court said this was a contract.  Doesn’t matter if he was joking or not, have to look at what actions convey
o   Rule: same as Embry/ Restatement rule.  
i.         Promises further defined
o   Express promise
§  Specific undertaking in words; say exactly what we’re going to do
§  Need not be done in writing, can be done orally
o   Implied promise
§  Implied in fact – promise in fact exists
§  Implied in law – aren’t promises at all; promise the law presumes to exist in every transaction of this sort
o   Legally exact same result for both.  Doesn’t really matter
* This promise information is relevant to all theories
 
2.  Was an offer made?  (even though we don’t need one)
a.      Offer creates a power of acceptance in the offeree so she can bring the contract into existence by signifying acceptance of the transaction on the proposed terms
b.      Rest. 24: Offer defined
o   The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
o   W’s terms: a promise that reasonably leads the other party to believe that a contract will spring into existence, be formed, as soon as they manifest their assent to the offer
c.       Rest 21:  Intention to be legally bound
o   Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract
o   A party’s intent to not be bound may prevent formation of a contract because of a lack of mutual assent
§  But, this still might be enforced if the other party relied on it (fully or partially performed on one side) because otherwise it may result in unjust enrichment
d.      Rest 33: Certainty (reasonably certain terms)
o   Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain
o   The terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy
o   The fact that one or more terms of a proposed bargain are left open or uncertain provides evidence that parties never finished negotiating à no contract
e.       Requirements for an offer (expre

in good faith, not to the whole thing” (remedy to breach of good faith could be expectancy, not reliance – can’t recover in reliance for pre-contract expenditures)
* Take approach that parties agreed on.  Inference from the facts. 
o   Empro v. Ball-co
§  Facts: Empro sent letter of intent with general terms/ conditions “subject to” other stuff, Ball-co wanted more, Empro said no, Ball-co started negotiating with others.  Court held that there was no binding contract
§  Rule: Parties who make their pact “subject to” later definite agreement have manifested an objective intent not to be bound even if one party later says that the true intent was different (triggers parole evidence rule)
ú  Exception – if full agreement showed that formal contract was to be nothing but a memorial of an agreement already reached, the letter of intent would be enforceable
o   Texaco v. Pennzoil
§  Facts: Pennzoil and Getty had prelim deal to work together, formal contract never made, and Texaco “interfered”.  Court held that there was sufficient evidence to say that company intended to bind to agreement with Pennzoil
§  Rule: Factors to consider to determine if there were sufficient manifestations of assent to create contract (even though formal agreement wasn’t done): 
1.      Whether party expressly reserved the right to be bound only when a written agreement is signed
·         “this isn’t a contract, we aren’t bound until final agreement on all terms”, TX court says “subject to” isn’t enough
·         If right was reserved, no contract
2.      Whether there was any partial performance by one party that the party disclaiming the contract accepted
·         Here, Getty did do some stuff, like drafted contracts etc, but that didn’t count as partial performance because they would’ve done that stuff with anyone
·         If no partial performance, no contract
3.      Whether all essential terms of the alleged contract had been agreed upon
·         Look at drafts, course of dealing, industry standard
·         If essential terms not agreed upon, no contract
4.      Whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected before the deal goes forward
·         Here, it was that kind of transaction but 1 factor isn’t significant enough to overturn jury verdict
·         If really complex and needing another writing, no contract
o   No damages for contract to bargain
§  Hard to force/ prove failure to bargain in good faith
§  Parties contract for a thing, not a process
i.  What kind of offer was it – i.e., how could it be accepted?
o   Manner of acceptance
§  Ask: Does the offer specify manner of acceptance?
ú  If yes, use that method
ú  Rest. 50: Offer can specify that acceptance may be by performance or promise to perform
ú  Example: If you promise to paint my house next Thursday, I’ll pay you 1,000.  You accept by saying I accept.
§  If not, ask: reasonably interpreted, does offeror want performance only?
ú  If yes, acceptance by full performance only, no contract until then
·         See unilateral contract
ú  If no, offeror wants promise, then offeree gets to choose to perform or to promise to perform
·         See bilateral contract