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Contracts
University of North Carolina School of Law
Hirsch, Jeffrey M.

Contracts Outline

Hirsch

Fall 2013

Sources of Law

UCC: governs the sale of goods

goods are tangible, moveable

Common Law: governs K for things other than goods

if there is K for service and goods- governing law is based on the most substantial and important part of the K

Restatement: not been adopted in full anywhere

restates the majority rule of contract law; OR

defines what the authors think should be the rule

Policy in K

Autonomy, Freedom of K, Stability, Efficiency

Generally, societal values help shape which K we will enforce

Formalism v. Functionalism

Formalism benefits: predictability that allows people to govern their actions with knowledge of the consequences.

Problems- may drive up costs because must account for unforeseen circumstances

Functionalist benefits: allows for parties’ intent to be basis for decisions. Consider more factors.

Problems- more litigation and more information in making decision.

Policy as a defense to K enforcement:

Sometimes a K is not enforced because of public policy (ie: buy slave, sell drugs)

Problem is when there is no legislation on what the public policy is: (1) court must play legislature (2) court must determine public interest v. private interests of the parties.

Restatement: uses broad terms and has no clear rules. Just says to weigh interests

See: Tunkl v. Regents of Univ of California (exculpatory clause for non profit hospital)

6 factors to consider to find public interest concern: (1) publicly regulated business; (2) public necessity or service (3) open to the public (4) unequal bargaining power (5) adhesion k (6) control or dominion over other party

Vocabulary

Agreement: promise between 2 or more people

Contract: exchange relationship created by oral or written agreement between 2 or more people containing at least 1 promise that the law recognizes as enforceable.

Bargain: negotiation resulting in the voluntary assumption of an obligation by one party upon the condition of an act or forbearance by the other.

Detriment: promisee must do or refrain from doing something she would otherwise have a right to do.

Bilateral Contract: promise for a promise

Unilateral Contract: promise for performance

Offer: manifestation of a willingness to enter a bargain which justifies the other party in thinking that his acceptance will create the bargain.

Acceptance: a manifestation of assent to the terms made by the offeror in a manner invited or require by the offer

Mutual Assent: manifestation of intent

Revocation: unambiguous communication that offeror has changed mind

Option K: offer, plus a paid for promise (supported by consideration) not to revoke

Firm Offer: (UCC): merchant has signed a written promise not to revoke an offer for the sale of goods

Promissory Estoppel: offer has been relied upon in a way that is reasonably foreseeable

Mailbox Rule: an acceptance is effective from the moment it is sent

Mirror Image Rule: response must be identical to the offer to be an acceptance.

Consideration: requested, bargained for detriment

Pre-existing Duty Rule: there is no consideration for doing something you are already legally obligated to do

Statute of Frauds: requires a writing for certain types of K >$500 (UCC)

Capacity: person who reaches the age of majority (18) has capacity to K

Duress: may be physical or economic, but illegal pressure to form K

Misrepresentation: Statement by a party that is untrue and relied upon by the other party in entering the K

Mistake: misunderstanding by one or both parties to a K about a material item

Undue Influence

Ambiguity: uncertainty about a K term

Unconscionability: enforcement of the K would be unthinkable in light of the circumstances of creation or the impact of the K

Condition: specific fact that must occur or not occur

Promise: agreement

Specific Performance: requires party to fulfill the K as agreed

Punitive Damages: damages construed as punishment, not as remedy

Liquidated Damages: contract states what the damages are for a breach

Compensatory Damages: fulfill purpose of K damages- compensate

Restitution: compensation

Expectation Damages: put party into position it would have been in had the K been performed

Consequential Damages: recover the special damages incurred as a result of the breach (ie: lost profits)

Avoidable Damages: cannot recover for damages that could be avoided

Mitigation: requirement that party seek to limit the amount of damages so long as methods are reasonable and similar

Recission: party rightfully cancels the contract

Impossibility: impossible for one party to perform K

Impracticability:

Frustration of Purpose: mutually understood purpose of entering the K has been changed or eliminated

Parole Evidence Rule: seeks to limit the admission of additional evidence about an agreement after an integrated agreement is created by the parties

Integration: final, written version of an agreement as intended by the parties

Merger Clause: included in K sometimes to say that this is the complete and final agreement

Anticipatory Repudiation: One of the parties to the K unambiguously indicates that he is unwilling or unable to perform the K before the time of performance under the K is due

Material Breach: will excuse the other party from performing [common law]

Perfect Tender Rule: [UCC]: each party is entitled to have the contract performed as they have agreed upon.

Is there an Agreement?

Objective approach to agreements (See: Lucy v. Zehmer)

3 Stages to create an agreement

1. Initial Communication- OFFER?

Look to the content of the communication

Missing terms are OK

Watch for vague terms (“fair” “appropriate” “reasonable”)

Watch for requirements K (“requirements” “solely” “only” “all”)

Look to context of communication

Offer made is jest is not an offer if objectively, it would be known the offer was made in jest

Compare: Lucy v. Zehmer and Leonard v. Pepsico, Inc.

Preliminary negotiations do not constitute an offer

Lonergan v. Scolnick

Bids are not offers- they are the basis for preliminary negotiations

Gleason v. Freeman

Advertisements are not offers generally (lack sufficient details)

If the ad has SPECIFIC terms (number, quantity, price, duration) it may be an offer Lefkowitz v. Great Minneapolis Surplus Store

Words of commitment suggest an offer (send X plus shipping for your free Y)

Auctions are not offers- they are a solicitation for bids

Gleason v. Freeman

OFFER occurs when you submit a purchase order, not when you get a price quote (see: Nordyne v. ICM- forum selection clause in K)

2. After the Offer

Death- offer expires

No response- offer lapses after a reasonable time

Depends on industry standard

Minnesota Linseed Oil Co. v. Collier White Lead Co.

Direct Revocation- offer is revoked unambiguously

Exceptions to Revocation

Option K

modern rule: requires consideration

restatement: signed, option K that references consideration is adequate

Firm Offer under UCC: allows irrevocable offer without reference to consideration if:

er offer

conditional acceptance

“on condition that” “provided that” “so long as” “if”

Mirror Image Rule: response must be identical to the offer to function as an acceptance. Any variance that adds to or changes the offer acts as a counter-offer (rejection) [COMMON LAW]

modern rule: allow small variations, NOT ok:

material change

more than mere addition of collateral materials

term that results in significant increase in party’s financial obligation or exposure or duties

(see: Rhode Island Transportation v. PWR and Promet- state has first right of refusal on RR land)

UCC 2-207 (1): A definite and seasonal expression of acceptance, even if different from offer, will be an acceptance, unless the acceptance is expressly conditioned on acceptance of additional terms.

Is there any reason this agreement should not be enforced?

Lack of Consideration (bargain theory) (Restatement §71)

Definition: A promise is supported by consideration if: (1) the promisee suffers a legal detriment by giving up something of value (or circumscribing his liberty); and (2) the promise is given as part of a bargain- in exchange for the promisee’s giving of value of circumscribing his liberty.

Helps distinguish between enforceable promises and those that are not

Steps

Determine who is the promise-breaker

Did that promise breaker ask for anything in return for his or her promise?

See: Hamer v. Sidway (uncle pays nephew $500 for not smoking until 21- bargained for consideration- uncle gains from nephews abstinence)

Potential Problems

Pre-existing Duty Rule: there is no consideration for doing something you are already legally obligated to do.

Common Law: need new consideration for contract modification

Restatement: follows general rule with an exception for times when modification is “fair and equitable in view of circumstances not anticipated by the parties when K was made.” Angel v. Murray

Restatement Test: (see: Angell v. Murray- trash collection where number of homes increases)

unanticipated circumstances

K not fully performed on either side

Fair and equitable

UCC §2-290(1): don’t need new consideration for modification, so long as it is made in good faith and complies with an no-oral modification clauses (requires writing)

If there is good faith and NO extortion, duress, coercion

Past Consideration: cannot bargain for someone to do something they have already done.

Gift Promises: family gift promises not typically supported by consideration, not enforceable