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

WEIDEMAIER CONTRACTS UNC FALL 2014 OUTLINE

GENERAL CONTRACTS and LAW THAT APPLIES?

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. (R1 Contract Defined)

Types of Contract for Acceptance:

Unilateral: Acceptance by performance; once an act is completed, the contract is formed; only occurs if the offeror indicates that completion of performance is the only way to accept or there is an offer to the public

Bilateral: Exchange of mutual promises (MOST contracts); acceptance by promise or beginning performance

Option Contract: written contract that remains open (irrevocable) for a period of time

PROMISE: is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. (R2 Promise Defined)

Must behave in a way that is reasonably and in fact leads to another person believing that you are committing to the promise

Behavior by promisor is purely objective (don’t take into account the mindset of the promisor)Lucy v. Zeihmer

An AGREEMENT is a manifestation of mutual assent on the part of 2 or more persons (R3 Agreement Defined)

A BARGAIN is an agreement to exchange promises or to exchange a promise for performance (R3 Bargain Defined)

Types of Contract Formation: a promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct (R4 How a Promise is Made)

Expressed Promise: promise made in words (orally or written)

Implied Promise: inferred wholly or partly from conduct

Implied in fact: promise was actually made

Implied in law: promise that the law presumes was made in every transaction of this kind

Default rule: a rule that is there unless you change it

Mandatory rule: rule that is required by law

Uniform Commercial Code (UCC) Article 2: THE SALE OF GOODS

GOODS: are all things movable at the time they are identified as the goods to be sold under the contract [Most tangible things, and does not apply to the sale of real estate, services, or intangibles (patent)] (UCC §2-105(1) Goods Defined)

MERCHANT: is one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge of skills as to practices or goods involved (UCC §2-104(1) Merchant Defined) Almost anyone in a business; some provisions are narrower

Mixed Contract: in the case of a contract with both goods and services, the court will determine which law to apply

With mixed contracts, the court usually looks to what the main part of the contract is and applies that law (if it is a contract for real property à common law; if for sale of goods à UCC) Hooker v Roberts

Void, Voidable, Unenforceable

Void: cannot be enforced by anyone; has no legal effect

Shaheen v. Knight (pp. 11): (contracted with physician to sterilize him, wife got prego)

Rules:

· established public policy elements (virtual unanimity, fundamental policy, must meet both in order to be “void as against public policy”)

· not an enforceable contract that the P could recover for; no remedy for a healthy child (void against public policy) P has suffered no damages (joy of a child is not a damage)

· always check implied warranty of cure (implied in law promise)

· remedy—getting another vasectomy, cost of actual birth, or damages if birth was not normal

Voidable: it can be enforced; one or more parties may elect to avoid liability by raising a defense that makes a contract voidable

Unenforceable: agreement that is otherwise valid but which may not be enforceable due to various defenses extraneous to contract formation, such as the statute of limitations or statute of frauds.

CONTRACT FORMATION Contract or Promise?

· Formation of a Contract requires two elements: (1) mutual assent of the parties, and (2) some showing that this assent is the kind that the law will enforce ( consideration or promissory estoppel)

Statement ( I will marry you., the sky is blue) only some statements are promises

Promise- (I will meet you on Friday., I will marry you) only some promises can be enforced as contracts

A promise: is a manifestation of intention to act or retain from acting in a specified way. If made, as to justify a promisee’s understanding that a commitment has been made.

Contract ( A promise is enforceable as a contract if—– There is consideration and promissory estoppel

WAS THERE MUTUAL ASSENT?

· 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. (MEETING OF THE MINDS) Someone manifests assent if:

· A reasonable person would understand that an offer was made. Leonard v. Pepsico

· Courts use an objective measure to determine whether each part is bound to the apparent intention that he manifested

· The offeree has to in fact understand that an offer was made. Nebraska Seed V. Harsh

· Key Question: did the alleged breaching party behave in a way that reasonably leads the alleged injured party to believe a contract had been formed? Lucy v. Zehmer

· Policy: contractual obligations should not be imposed on someone who did not agree to be bound

· UCC §2-204: Formation in General

· A contract for sale of goods may be made in a manner sufficient to show agreement, including the conduct by both parties that recognizes existence of a contract

· An agreement is sufficient to constitute a contract for sale may be found even though the moment of undertaking is undetermined

o UCC §2-204 and §2-305: courts can supply reasonable terms for those missing.

· R17: Requirement of a Bargain

· Except as stated in (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

· Whether or not there is a bargain, a contract may be formed under a special rule applicable to formal contract or under rules stated in §§82-94.

· R18: Manifestation of Mutual Assent

· Manifestation of assent to an exchange requires that each party either make a promise or begin to render performance

· R19:Conduct as Manifestation of Assent

· The manifestation of assent may be made wholly or party by written or spoken words or by other acts or by failure to act.

· 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.

· The conduct of a party may manifest assent even though the actor does not in fact assent. In such cases, a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.

§ Implied by conduct and Defense provision

· Lucy v. Zehmer (pp. 270): (Sale of land on the back of a bar bill as a joke was enforceable)

Rules:

· If you behave in a way that makes the other party reasonably believe that there is a contract, then there is a contract

· mental assent of parties is not requisite for the formation of a contract; UNDISCLOSED INTENTION is immaterial except when an unreasonable meaning which he attached to his manifestations is known to the other party

· court must assess the objective intent

WAS THERE AN OFFER?

· Offer: creates the power of acceptance and liability on the offeror; to be valid, the offer 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; a manifestation of willingness to enter into a bargain so that the other party’s acceptance concludes the contract NE seed v. Harsh

o Reasonable person standard: if no reasonable person would believe you made a commitment with the particular term open, then there is no agreement/offer

· R24: Offer Denied: an OFFER: is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that this assent to the bargain is invited and will conclude it.

· R22: Mode of Assent—Offer and Acceptance

· 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.

· A manifestation of mutual assent may be made even though the moment of formation cannot be determined.

· R26: Preliminary Negotiations: A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent

· Was there an Expression of a Promise, Undertaking, or Commitment?

· The parties must show intent to enter into a contract (distinguish from preliminary negotiations—R26). Look for words like “I offer” or “I promise”; “I quote” is normally for preliminary negotiations.

· Courts look into

· Circumstances surrounding the language

· Prior practice/relationship of parties

· Trade practices

· R27: Existence of a 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 pa

conditions precedent to the closing including but not limited to the purchase agreement and five other conditions”; negotiations broke down after Empro refused Ball-Co’s request for a security interest in the land; Empro later learned Ball-Co was negotiating to sell assets to another party and Empro sued, asserting the letter of intent was a binding agreement)

o Rules:

· a letter of intent and negotiations were not enough to signify a contract—letters of intent often do no more than set the stage for negotiations on details

· no reasonable person would believe there was an agreement while deciding on a secured/unsecured loan Empro’s letter states twice that it was subject to a later definitive agreement; it also states twice that it contains general terms and conditions but that each side retains the right to make additional demands; Empro insulated the transaction further by making the deal subject to board approval

· “We are not bound” could absolve the parties of contract liability as long as there are MISSING TERMS that are essential; applied reasonable person standard; a party who makes a deal subject to a later definitive agreement has manifested an objective intent not to be bound—under parol evidence, this becomes the definitive intent even if one party later claims that its true subjective intent at the time was different

· Texaco v. Pennzoil (pp. 323 and 428): (P (Pennzoil) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release. D (Texaco) made an alternative offer to Getty’s board. Getty repudiated its agreement with Pennzoil and accepted Texaco’s offer. P sued D for tortious interference with contract. D asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Getty’s board of directors and would expire by its own terms if not approved. P asserted that the contract was binding because the Memorandum had been executed by a group of parties that controlled the majority of outstanding shares in Getty.)

o Rules:

· D (Texaco and technically Getty) breached contract between P and Getty; the terms of a contract must be ascertainable to a reasonable degree of certainty in order for a contract to be enforceable—substantial evidence of P’s and Getty’s intention to be bound subject to approval by their boards; intent was shown by the Memorandum and the press release

· created factors to assess the parties’ INTENTION TO BE BOUND by the contract

· Texaco factors: Use these factors to assess if an agreement has been made

· Express Reservation: Is there explicit language stating the parties would only be bound by a final agreement?

· Partial Performance: Is there partial performance by one party disclaiming the acceptance of the contract?

· Essential Terms: Are all of the essential terms agreed upon?

· Complexity/Magnitude: Is the transaction so complex or big that people would normally expect a formal, executed writing?

· Vague Terms

o The court cannot presume that the parties intended to include a reasonable term if the parties have included a term that makes the contract too vague

o Partial performance or acceptance can allow for that presumption if there is a vague term.

· Was it communicated?

· The offeree must have knowledge of the offer. The offeror must ensure that the offer is addressed to the appropriate person.

· R29: To whom an offer is addressed

· The manifested intention of the offeror determines the person or persons in whom in created a power of acceptance

· An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in any one or everyone who makes a specified promise or renders a specified performance