I. WHAT LAW APPLIES?
A. Contract as a promise
*CONTRACTS ARE PROMISES THAT ARE ENFORCEABLE (Rest. §1)
1. Basic Elements of a Breach of Contract Action
· What law applies? (UCC or common law)
· Is there a promise?
o Restatement 2nd §2 and §4
· If so, is that promise enforceable?
· If so, what was promised and was it kept?
o Shift of burden of proof
· Is there a defense?
· If not, what remedy?
o Damages, injunctions, specific performance
2. Default Rules vs. Mandatory Rules
· Default rules- can be changed (typical)
o i.e. “Doctors do not promise results” (PA law)
· Mandatory rules- can’t be changed (atypical)
o i.e. contract to lend bank robbing skills is void because it’s criminal
B. The UCC and Common Law
· Article II of the UCC applies to SALES OF GOODS
· UCC overrides all common law if they are in conflict and the UCC applies
· If common law and the UCC are not in conflict they can both be used
· Goods are THINGS
o All things must be movable at a particular time
o Money to be paid (purchase price, cash you pay) is not a thing
§ Securities, stocks, bonds, claims in action à NOT goods
· Sale is a transfer or title
o Rights associated with the ownership of a property
1. Hooker v. Roberts (1996)
*Case of mixed transaction of goods and services. Question of whether UCC applies.
Tagline: The test for a mixed transaction of goods and services, and thus whether the contract should be interpreted under the UCC or general contract law, should depend on the nature of the contract and the nature of the dispute.
· Nature of the contract
o How is the money allocated?
o Was service independently valuable?
§ Would you have gotten the service without getting the good?
· Nature of the dispute
o If the contract is, in its nature, over the dispute of a good, then it can be UCC
o In this case, the nature of the dispute is about the SERVICE
§ Whether Roberts is obligated to perform a particular service
o Therefore, the court looks at common law, not the UCC
II. WAS A PROMISE MADE?
Formation of a Contract requires 2 elements:
1. the mutual assent of the parties
2. some showing that this assent is the kind that the law will enforce
Restatement 2nd § 1-4
§1: Contract Defined
A contract is a promise or 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
§2: Promise; Promisor; Promisee; Beneficiary
(1)- A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made
Note: “justify”- you have to in fact believe a promise is made and that belief has to be justified
(2)- The person manifesting the intention is the promisor
Note: “manifest intent”- you have to behave in a way that reasonably and in fact leads the other person to believe that they have made a commitment, THEN you have made a promise, DOESN’T require explicit words
It doesn’t matter what is subjectively in the mid of the person who MADE the promise
We DO care about the reasonableness of the person to whom the promise was made and what they were subjectively thinking
(3)- The person to whom the manifestation is addressed is the promisee
(4)- Where performance will benefit a person other than the promisee, that person is a beneficiary
§3: Agreement Defined; Bargain Defined
An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
§4: How a Promise May be Made
A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct
Note: Express and Implied Promises/ Contracts
· Express or “special” contract- written, oral
· Implied contract- from conduct
· Formally, there is no difference between these, they’re both contracts
A. The objective theory of assent: was an offer made?
· It must, to constitute a contract, appear that the two minds were at one at the same moment of time
· The existence of the same mind between the two parties is essential to the making of an agreement
1. Theory of Assent
§17: Requirement of a Bargain
(1)- The formation of a contract requires a bargain in which there is a manifestation of mutual assent to exchange and a consideration
(2)- Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts
§18: Manifestation of Mutual Assent
Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance
§19: Conduct as a Manifestation of Assent
(1)- the manifestation of assent may be made wholly or partly by written or spoken words r by other acts or by failure to act
(2)- the conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents
(3)- the co
oup or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance
(1)- 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
(2)- the terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy
(3)- the fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance
Note: if the agreement was so indefinite and incomplete that it can’t be enforced
1. Leonard v. Pepsico (1999)
*Pepsi’s Harrier jet commercial was an ad, NOT an offer
Tagline: the exception to the ad rule is where the advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” in that circumstance, “it constitutes an offer, acceptance of which will complete the contract.”
· Cites Lefkowitz case, which found an ad was an offer
o “3 fur coats worth $100, first 3 people in store $1 each”
o We know who those 3 people will be, it’s specified
· In Pepsico case, no such words of limitation
C. Memorializing the agreement
1. Texaco v. Pennzoil (1987)
Tagline: Sets forth factors for INTENTION to be bound by K
· Four considerations as to whether the parties intended to be bound only by a formal, signed writing
o Explicitly say we will only be bound by a final agreement
o Partial performance by the party disclaiming the K
o Agreement on all essential terms
o Magnitude and complexity of the transaction
2. Restatement 2nd §27: Existence of Contract Where Written Memorial is Contemplated
· Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parites also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations