Contracts Outline Haynes Spring 2011
I. Introduction to Contracts
A. Contract – exchange relationship, created by agreement between two or more parties,
containing at least one promise, and recognized as enforceable in law
B. What Makes an Agreement a Contract?
1. Exchange relationship – each party gives up something in exchange from the other
2. Created by agreement – voluntary nature is fundamental, not always in writing
3. Containing at least one promise – at least one of parties must have made a
promise, i.e. committed to do or refrain from doing something in the future
4. Recognized as enforceable in law
5. Cohen v. Cowles Media
C. The Enforcement of Contracts: An Introduction to Remedies
1. Damages
a. Usual form of remedy for breach of contract, principally economic damages
b. Expectation damages – represent the economic loss suffered by the victim as
a result of the breach and are measured as the amount of money needed to
put the victim in the position she would have been in had the contract not
been breached; gold standard giving you the monetary value of the benefit of
the bargain
i. Direct damages – actual loss under the contract itself i.e. ensued as a
result of the breach (A was going to buy widgets for $100, B breached
and A had to buy it elsewhere for $125, A is entitled to $25)
ii. Consequential damages – consequences of the breach of contract (A
builds building one month behind schedule, B entitled to
consequential damages for loss of profits for the delay)
iii. Incidental damages – expenses incurred in dealing with the effects of
the breach (A has to hire a lawyer, B pays for lawyer because it is
incidental cost); in essence, recovery costs
c. Generally not awarded for emotional distress in contract
2. Specific Performance – court orders someone to do what they said they were going to
do, rarely granted because of the Thirteenth Amendment (slavery)
3. Keltner v. Washington
a. Can get emotional distress only when paired with physical injury
II. Sales of Goods and Article II of the UCC
A. Introduction to Article II
1. Uniform Commercial Code
a. Article II of the UCC governs the distributorship and sale of goods
b. Need to determine when it applies, the first question
c. Applies when the transaction is a sale of goods
d. Transactions of a mixed nature (e.g. restaurant – pay for food and service)
give varying results as to if UCC applies or not
e. Comments are not law but they have significant authority to be persuasive
f. Article II binds courts and is the law
g. Does not apply to services
B. Scope of Article II
1. Pass v. Shelby Aviation, Inc. – decedents sue when plane crashes
a. Both services and goods were in the transaction (installing airplane part) so
UCC may be an easier route for plaintiffs in recovering for breach of warranty
b. Mixed transactions test
i. Gravamen test – what is the grounds of the complaint and isolate that
part of the contract and determine whether it is a good or service and
allow the suit on this
ii. Predominant factor test – looks at the contract as a whole to see
whether goods or services predominate, the court uses this test
because of precedent; simpler and more predictable approach than
gravamen test
iii. Not using the gravamen test removes incentive that Shelby has to
make sure that the products it uses are fit for use by saying that just
because something is more service oriented than goods oriented, it
does not fall under the UCC
III. Contractual Assent and the Objective Test
A. Objective Standard for Determining Assent
1. Observable, objective indications of intention
2. Kabil v. Mignot – it would be absurd to allow a contract when neither party meant to
assent when the objective test would show that they did
3. Objective v. Subjective View of Contract
a. Objective – provides predictability, fairness, reliability (all the results will be
the same), efficiency
b. Subjective – fairness (can’t be fair to everyone with a “one size fits all”
mentality, greater truth (did you really intend to enter into a contract),
compassion
B. Determination of Objective Meaning: Reasonable Person Construct
1. Ask what a reasonable interpretation of the contract might be based on the
perspective of the party who observed it, taking into account his attributes
(experience, training, sophistication), background information he possessed,
relationship between the parties, and context of the transaction
C. Deliberately Undisclosed Intent
1. Deliberate failure of a party to express what he really intended
2. Lucy v. Zehmer
a. Defense was that apparent assent to a contract was intended in jest
b. The contract is proven to be valid however for the following reason:
i. Appearance of the contract
ii. It was under discussion for 40 minutes before it was signed
iii. Discussion of what was to be included in the sale
iv. Completeness of the instrument that was executed
D. Remedies: Expectation Damages, Specific Performance, Distinction Between Law and Equity
1. Expectation damages
a. Compensates the plaintiff for the economic loss resulting from the breach
b. P
2. To decide whether or not it is an offer, the court must ascertain the reasonable
meaning of the communication by the same process of interpretation in context
3. Advertisements are not offers but a solicitation for offers is the general rule
4. Advertisement is not an offer unless it is clear, explicit, definite, and has words of
limitation (first come first served, quantities limited) which are enough to turn an ad
into an offer
5. Can be an offer if interpreted in context would lead a reasonable prospective buyer to
understand that an offer was intended
6. Can be an offer if it calls for performance of a specific act without further
communication and leaves nothing for further negotiation
7. Leonard v. PepsiCo Inc.
a. An advertisement is not transformed into an enforceable offer merely by a
potential offeree’s expression of willingness to accept the offer through,
among other means, completion of an order form
b. Commercial cannot be regarded in itself as sufficiently definite because it
specifically reversed the details of the offer to a separate writing, the catalog
c. Even if catalog included jet, advertisement still not an offer because no words
of limitation (first come, first served) rendering the ad indefinite such that no
contract is formed
d. Used objective person test – no objective person could have reasonably
concluded that the commercial actually offered the jet
8. Advertisement is not an offer, but an invitation to negotiate
E. Offers Under UCC Article II
1. Article II applies only when the contract involves a sale of goods and to qualify as a
sale of goods for purposes of Article II< a contract must involve 1. a sale and 2. Goods
2. Article II does not apply to repairing, renting, and storing goods
3. Real property (land and buildings) and shares in a corporation are NOT goods
4. Article II does not contain any rules that specifically address offers, so under UCC 1-
103, in a sale of goods questions such as those discussed in this chapter are dealt with
under the general rules of the common law
5. Approach to be used in resolving offer and acceptance issues is a realistic evaluation
of the facts of the transaction that focus not on technical rules but on the question of
whether an agreement was in fact made
