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Contracts
University of North Carolina School of Law
Brown, Carol N.

Contracts
 
Look at the formation of the contract – Is there a contract?
1.       Offer
2.       Acceptance
3.       Consideration
4.       Intent to be bound
5.       Promise
What are the terms of the contract?
Look at performance – was it faithfully carried out?
Look to see if performance is excused in any way
Remedy
 
Contract requires:
1.       Consideration
a.       Can be met either by promising (bilateral) or by doing/action (unilateral) depending on the context
b.      Issue when:
a.       There is an outstanding promise to be enforced
a.       Does not affect the validity of an executed performance
b.      Commercial exchange – promise is clearly purchased for an economically equivalent price
a.       Does not concern donative promise – unconditionally makes a gift, and therefore the promise is not legally binding
                                                             2.      Exam Tip:
a.       First identify who is the PR and PE
b.      PED analysis:
a.       Was there a modification to the contract?
b.      Was the PE to perform the same old duty as consideration? Or is it something that is different from what was required (more than a pretense of bargain)?
c.       Mutuality of Obligation:
a.       Mutuality Issue when – PE appears to have made NO promise
                                                                                                                                       i.      Evaluate PE’s promise based on its express terms alone (don’t consider legal excuse (statute of limitation/fraud) or discharge)
                                                                                                                                     ii.      Look at alternatives for PE
b.      Illusory Promise:
                                                                                                                                       i.      What is the issue in the problem?
                                                                                                                                     ii.      What is the language of the K that poses that problem? Use the facts
                                                                                                                                    iii.      In bilateral K, if PR’s promise is illusory = issue is indefiniteness
                                                                                                                                   iv.      In bilateral K, if PE’s promise is illusory = issue is mutuality of obligation
d.      Promissory Estoppel
a.       See if there is a K first – if there is consideration
b.      Does the fact present all of the elements required for PE?
c.       PE *** mainly should be applied in case lacking consideration
d.      PE Cases
                                                                                                                                       i.      Clear promise – with no consideration
                                                                                                                                     ii.      Hidden Promise with PR’s discretion (good faith – honesty and reasonableness) – there is assent and consideration but lacks definiteness
                                                                                                                                    iii.      No Promise at all
2.       Assent
a.       Process – offer and acceptance
                                                                                       i.      Not always required – i.e. simultaneous agreement, written contract
                                                                                     ii.      Offer – indicates OR’s
1.       Intent to contract
2.       Intent to be bound immediately upon OE’s acceptance
                                                                                    iii.      Acceptance – requires
1.       Knowledge of offer – usually an issue in unilateral
2.       Intent to accept (objective standard)
3.       Proper OE (invited) – i.e. Lefkowitz
4.       Manner of Acceptance
a.       Was it mandated or a mere suggestion – look at intent or context
                                                                                   iv.      Mistake, duress, etc. all effect process????
b.      Intent – objective manifestation of mutual assent (reasonable person)
                                                                                       i.      Issues of Intent
1.       Is there a contract?
a.       Formation of a contract
2.       What are the terms of contract?
a.       Interpretation (parol evidence rule) – is there all the essential terms?
c.       Valid contract = actual intent + no fatal indefiniteness (* essential terms = description, price and quantity of the goods)
d.      Assent must be voluntary – not based on duress, misrepresentation, etc
3.       Interpretation of K
a.       PER – modification (After the contract) are not effected by PER
                                                                                       i.      Finality: Always look at finality first – parties’ actual intent (can be reflected in the writing)
1.       Merger clause is good indication of finality, but not always definite evidence
                                                                                     ii.      Completeness:
1.       C/L – 4 Corners of the Writing (strictest test)
2.       Examine all relevant evidence (most liberal test)
3.       UCC 2-202 (even more liberal)
a.       See whether the additional term is consistent with the writing
b.       
4.       Admissible unless would certainly be in the writing?
5.       Test: complete and exclusive
                                                                                    iii.      Effect of PER:
1.       If writing is Final + Complete – bars inconsistent terms AND supplementary terms from any prior agreement AND contemporaneous oral agreements (under C/L and UCC)
2.       Full effect of PER – bar extrinsic terms
                                                                                   iv.      Three Big PER Issues
1.       If Partial Writing
a.       Look for S/F? supplement and final?
2.       Finality
a.       Test is parties’ intentions – at least one term is in final form
3.       Complete?
a.       Test range from 4 corners (strict) to all evidence inquiry (liberal)
b.      UCC 2-202: complete and exclusive test
                                                                                     v.      PER affect 2 issues:
1.       Terms and Interpretation
                                                                                   vi.      Defense to PER
1.       This is a separate/collateral agreement – but this would require a separate consideration
4.       Avoidance of Contract
a.       Mistake
                                                                                       i.      Mutual mistake of
                                                                                     ii.      Material fact (basic assumption on which K was made and material to both parties)
                                                                                    iii.      Risk Allocation (party seeking avoidance must not have born the risk – if not specified in K, what is reasonable under the circumstances)
b.      Misrepresentation
                                                                                       i.      Truth known or should known to one party
                                                                                     ii.      Reasonable reliance
                                                                                    iii.      Of fact, not opinion
                                                                                   iv.      That is material
c.       Nondisclosure
                                                                                       i.      Fiduciary relationship
                                                                                     ii.      Half truth
                                                                                    iii.      Positive concealment
                                                                                   iv.      Dangerous
                                                                                     v.      Reasonable reliance
d.      Unconscionability
                   

e for Article 2?
                                                             2.      Good faith – honesty in fact (subjective) in the conduct or transaction concerned 
B.      Article 2 – Mandatory – applies ONLY to sales of goods
                                                             1.      Good faith – *only in case of merchant* means honesty in fact (subjective – what the person actually thought) + observance of reasonable commercial standards [of the particular trade] of fair dealing in the trade (objective)
C.      Bad faith – information known to one party, but not to the other party
                                                             1.      Fraud
                                                             2.      Misrepresentation – (a) willful (b) negligent
                                                             3.      Nondisclosure
                                                             4.      Mistake
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
III.                Assent
A.      Intent
                                                             1.      Principle Rule: objective manifestation of mutual assent = intent (by looking at the evidence)
                                                             2.      What a reasonable person in the position of the OE would believe about the objective manifestation of intent of the OR (Lucy v. Zehmer) 
a.       Exception: joke (circumstantial evidence), sham (known to both parties), incapacity to contract (drunk/minor), preliminary negotiations, puffery (exaggeration), illegality, duress, indefiniteness (missing essential terms)
b.      Exception: If OR can show that OE knew or should have known that he was not serious – can show actual knowledge of the subjective intent of OR
c.       Exception: If parties’ subjective intent differs from objective manifestation AND subjective intent matches, then subjective intent applies
·         Subjective = mental intention – good faith & bad faith?
·         Objective = intentional acts manifesting assent (acts, not necessarily desiring the consequences – reasonable person)
                                                             3.      Intent to Be Bound
a.       General Rule: even if intent to be bound is not specified, presumption that the parties intended the K to be legally enforceable – i.e. business situation in Zehmer
a.       Exception: Surrounding circumstance appears that the parties do not intend to be bound or do not intend legal consequences – i.e. social obligation, familial situation
                                                                                                                                       i.      Exception does NOT apply – if it is unfair not to enforce the agreement – i.e. unjust enrichment 
B.      Process
                                                             1.      Good Faith – any offer and acceptance must be in good faith????
a.       UCC Article 1 – honesty in fact (subjective) in the conduct or transaction concerned
b.      UCC Article 2 *mandatory for merchant* – honesty in fact (subjective) + observance of reasonable commercial standards [of the particular trade] of fair dealing in the trade (objective)
                                                             2.      Offer
a.       Elements of Offer – offer must contain all of these (expressly or by implication):