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University of Oklahoma College of Law
Kershen, Drew L.

Contracts Notes
Contracts Class, Fall 2010
University of Oklahoma
Prof. Drew Kershen
·          Must take baby steps with the reasoning of each answer; explain each term, build slowly, in a step-by-step manner
·          Always ask the HOW for each part of an answer
Contract- an agreement between two or more persons; not merely a shared belief but a common understanding as to something that is to be done in the future by one or both of them; an agreement (or promise) that has legal effect (creates obligations legally enforceable); three parts:
·          Agreement-in-fact
·          Agreement-in-writing
·          Set of rights and duties created by the above
Ownership of Property- typically includes right to use and consume thing owned; also the right to transfer ownership to another; contracts protect expectations that arise from making agreements for future exchange of various types of performance (conveyance of property, performance of services, payment of money, etc.)
Primary Authority- the law itself, consisting of prior judicial decisions (common law) and statutes, ordinances, and other expressions of the will of a duly constituted legislative body on a subject within its proper sphere of action
Secondary Authority- anything else that could appropriately influence a court, such as commentary by legal scholars and the American Law Institute’s Restatements of the Law
Judicial Opinions
·          Judicial system typically adheres to precedents; this offers 1) high degree of predictability so people can plan accordingly, and 2) stability and conservativeness, so judges don’t decide on personal or prejudiced bases
·          Precedents are only binding if made in that same court or a higher court of appeals; lower court precedents are merely persuasive
·          Courts can depart from precedent by 1) distinguishing material facts of the present case from those of the precedent, or 2) overruling the earlier decision (if made by that court or a lower one); overruling is considered very drastic
·          In the absence of useful precedents, courts can turn to policy (any societal goal that will be furthered by a particular decision); courts can discern public policies from other court decisions or statutes that may be unrelated to the case at hand, or may simply call policy what the judge finds just or moral
Statutory Law
·          “Statute of frauds” requires certain types of contracts to be evidenced by a signed writing to be enforceable; apart from this, contract law has been largely judge-made until the twentieth century
·          Development of the Uniform Commercial Code (UCC) in the 1940s was the most important element of making contract law more statutory
o    UCC does not apply to transactions in real estate or to personal service contracts
o    Karl Llewellyn (Article 2) sought to bring law applicable to commercial transactions more in line with business practice so as to effectuate the legitimate expectations of those engaged in business dealings; Llewellyn was a legal realist
o    All or part of the UCC has been adopted and is now in force in every state
o    Article 2 applies to all sales of goods, even when one or both parties are not “merchants”
·          Any court, even the highest, is bound to follow the provisions of a valid statute that apply to the dispute before it, because the legislature has ultimate lawmaking power so long as it is constitutional; when statutory language is unclear, courts generally seek to determine legislature’s original meaning
The Restatements
·          American Law Institute undertook to prepare summaries of rules of common law in various fields; first was Restatement of Contracts
·          Restatements don’t have force of law, but have been very influential
·          Many courts cite Restatements with approving discussion in their opinions
Legal Commentary
·          Two most famous commentaries are treatises by Samuel Williston and Arthur Corbin
·          E. Allen Farnsworth also has a treatise
·          James J. White and Robert S. Summers wrote a treatise on the UCC
International Commercial Law
·          General Agreement on Tariffs and Trade (GATT); two central purposes were reduction of tariff and nontariff barriers to trade and clarification of member countries’ rules regarding trade; central body for administering the GATT is the WTO
·          The Convention on the International Sale of Goods (CISG) is the international version of the UCC, except that the CISG does not apply to consumer transactions
·          UNIDROIT sponsored the Principles of International Commercial Contracts, which is like the Restatements
·          Formalists sought rigid adherence to rules and statutes
·          Believers in sociological jurisprudence sought to evaluate laws based on social interests that they served
·          Realists had a very fact-intensive approach; wanted to consider all aspects
·          Those of the economic approach sought to improve social and legal efficiency
o    Chicago School believes enforcement should only be withheld in cases of fraud or duress or other defined misconduct; unfair agreements should still be enforced
·          Critical Legal Studies (CLS) believe attempts to justify existing legal process are essentially political ideologies to preserve current distributions of power and wealth
Attorneys play the following roles:
1.     Counselor- assist client in identifying problems and legal position as objectively as possible; identify options available, make sure client understands legal consequences of each, and help make/implement decision
2.     Negotiator- understand client’s needs/aspirations, work out parameters of agreement, and meet opposing party in attempt to reach agreement
3.     Drafter- reduce agreement to writing; requires lawyer’s skill with words
4.     Advocate- barristers argue cases in court; solicitors have an office practice; present most persuasive arguments you can on client’s behalf
Contract law in practice is not just a body of rules, but a complicated process by which attorneys and clients make, perform/breach, and enforce exchange agreements
Restatement 1: Contract- 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 as a duty
Restatement 2: Promise- 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; may be state in words either or oral or written, or may be inferred wholly or partly from conduct
UCC 1-201(3): Agreement- bargain of parties in fact as found in language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in Act
UCC 1-201(11): Contract- total legal obligation which results from parties’ agreement as affected by Act and any other applicable rules of law
UCC 2-102: Scope- transactions in goods; doesn’t apply to any transaction intended to operate only as a security transaction; doesn’t impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers
UCC 2-105 (1-4): Goods- all things movable at time of identification to contract for sale other than the money in which the price is to be paid, investment securities, and things in action; also includes unborn young of animals and growing crops; must be both existing and identified before any interest in them can pass (goods not both existing and identified are “future goods”); can sell part interest in existing identified goods; can sell portions of bulk quantities of goods even though quantity is not determined
UCC 2-105(5): Lot- parcel or single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract
UCC 2-105(6): Commercial Unit- unit of goods as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on market or in use; may be single article, set of articles, or a quantity or any other united treated in use or in the relevant market as a single whole
Brief Format:
·          Identify relevant facts
·          Procedural status (previous decision, appeals, etc.)
·          Key holding
·          Dicta
·          Rationale/reasoning of court for decision
“Classical” contract law refers to principles and rules that emerged around the first Restatement of Contracts in 1932; two important aspects that distinguish classical from modern:
1.     Classical showed a preference for clear rules (sometimes called legal formalism) over general standards (like reasonableness)
2.     Relatively indifferent to issues of morality or social policy presented by contract cases, other than that contracts should be kept
“Modern” contract law is more attentive to needs of commercial marketplace, characterized less by rules than by standards; frequently more responsive to issues of social justice and economic power; exemplified by doctrines like good faith and unconscionability
·          According to Restatement 2nd, formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration
o    Under traditional model of contract formation, applicable to many commercial transactions, parties engage in give-and-take of bargaining through a process of offer and acceptance; reaching a deal manifests mutual assent; but contract can be formed even when parties do not engage in bargaining
o    Parties can incur legal obligations during negotiations, even though they haven’t entered into a contract
§   Restitution and promissory estoppel are examples
o    Even when contract formed, parties may be relieved of obligations if other party has engaged in some form of bargaining misconduct (fraud, duress, undue  influence, etc.) or if circumstances have changed significantly since formation of contract
Intention to be Bound: Objective Theory
·          Some courts state there must be a meeting of the minds; however, this takes intention into consideration and is therefore subjective
·          Objective theory looks at conduct and the manifestation of mutual assent
Case Name
Ray v. William G. Eurice & Bros., Inc.
Relevant Facts:
·          Rays contacted Eurice for estimate on construction of house
·          Rays then had architect develop specific plans, which Ray discussed with Eunice, making additions and deletions
·          Rays then asked Eurice for formal bid, which Eurice submitted with three-page plans/specifications, for $16,300
·          Rays’ attorney drew up contract, referencing attached plans/specifications clearly designated to be five pages
o    Contract contained prohibitions on varying from attached specifications without prior consent of owner
·          Contract was signed by both parties
·          Ray applied for a loan to cover the cost of the construction, the application for which Eurice helped him complete with certain details and information
·          The plans and specifications had to be signed on both sides, and these were signed by Eurice at the loan office
·          When time came to begin construction, Eurice refused to follow plans included in contract, claiming they had never agreed to them
Procedural Status:
·          Plaintiff sued for breach of contract
·          Original verdict for defendant (no meeting of the minds, misunderstanding); plaintiffs appealed
·          Trial decision reversed; judgment rendered
Does there have to be a “meeting of the minds” in order to have an enforceable contract?
Is contract binding even though defendant claims never to have intended to agree with plans/specifications in written contract?
Key Holding:
The mistake was not mutual, but rather unilateral on the part of Eurice.  Actual intention or belief is irrelevant; only matters what reasonable person in position of other party would interpret actions to mean.  Eurice must perform contract and pay for costs in excess of agreed upon amount; judgment reversed and judgment entered (remedy awarded to Rays of $5,993.40)
·          Point of the contract is to keep parties from changing their minds once the assent has been manifested
·          Two ways to form a contract:
o    Subjective intent agrees with each other, forming a contract
o    Objective conduct (actions, words, etc.) indicates a willingness to be bound by terms (main way)
·          Signature implies reading and understanding; examining objective intent only allows courts to avoid determining veracity
·          Court cited Williston and Restatement 1st, as well as previous decisions
Restatement 17: Requirement of a Bargain- manifestation of mutual assent to exchange and a consideration
Restatement 20: Effect of Misunderstanding- mistake must be mutual; that is, neither party knows or has reason to know different meaning attached by other party, or each party knows or each has reason to know of different meaning attached by the other
Restatement 21: Intention to be Legally Bound- neither real nor apparent intention that a promise be legally binding is essential to formation of contract, but a manifestation of intention that a promise shall not affect legal relations may prevent formation of a contract
UCC 2-204: Formation in General- contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes existence of such a contract; moment of making need not be determinable; terms left open do not cause a contract to fail if parties have intended to make a contract and there is reasonably certain basis for giving an appropriate remedy
UCC 2-206: Offer and Acceptance in Formation- unless otherwise clearly stated, offer to make contract shall be construed as inviting acceptance in any manner and by any medium reasonable in circumstances; order or offer to buy goods for prompt or current shipment can be accepted by prompt promise to ship or by prompt or current shipment of conforming or non-conforming goods (in case of non-conforming, seller must seasonably notify buyer that shipment is offered only as accommodation to buyer); where beginning of requested performance is reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat offer as lapsed before accept

Case Name
Normile v. Miller
Relevant Facts:
·          Normile and Kurniawan filled out purchase form with one set of terms and set deadline to accept the purchase offer
·          Before the deadline, defendant Miller returned signed form but with changes in terms
·          Plaintiff Normile decided to wait and decide what to do about new terms, believing no one else could get property during that time
o    Statement by Normile that he had the option on the property and that he was going to wait before deciding what to do with counteroffer
·          Byer (real estate broker) thought Normile had rejected defendant’s counteroffer at this point
·          Segal signed form (after Normile received counteroffer) with terms similar to those sent to Normile which was accepted by defendant
·          Normile and Kurniawan then tried to accept the counteroffer Normile had received
·          Offer #1: Buyer 1 to seller à power of acceptance in seller (signing would complete the contract)
·          Offer #2: Seller to buyer 1 à power of acceptance is now in buyer (signing would complete contract, provided they initialed the additional terms); COUNTEROFFER IS A REJECTION (§38, 39, 59 Restatement 2nd)
·          Offer #3: Buyer 2 to seller; seller accepts while Buyer 1 is contemplating offer #2
o    Effectively revokes offer #2
o    Byer (agent) communicates the sale to Buyer 1, completing the revocation (definite action inconsistent with intention to complete contract)
Procedural Status:
·          Appeal of trial court’s decision to order specific performance against defendant; had to sell property to Plaintiff Segal
·          Appeal brought by Plaintiffs Normile and Kurniawan
There was no meeting of the minds between Miller and Normile/Kurniawan since parties failed to assent to the same thing in the same sense.  Because defendant did not unconditionally asset to terms proposed by buyers, the time-of-acceptance term of the original offer did not apply to defendant’s counteroffer.
Key Holding:
·          Court unanimously affirmed trial court’s actions
·          Defendant’s counteroffer did not contain any promise or agreement that her counteroffer would remain open for a specified period of time, i.e. it was not an option contract
·          By changing terms of original offer, defendant was both making a counteroffer and rejecting original offer
·          Prospective purchaser does not have the power to accept a counteroffer from the owner-seller after he receives notice that said counteroffer has been revoked
·          Normile and Kurniawan had manifested no intent to agree to the terms contained in defendant’s counteroffer, so that counteroffer remained fully revocable
·          No contract was formed between Normile/Kurniawan and Miller
·          Valid contract had, however, been formed by Miller and Segal; by doing so, Miller revoked her counteroffer to Normile/Kurniawan
·          Notice of revocation must be given to offeree, but this was done (sufficiently, though indirectly) by Byer when he instructed plaintiffs that defendant had sold the property to Segal
o     Offeror had taken definite action inconsistent with intention to make the contract
·          Acceptance must be unequivocal and unqualified to form a contract; qualified acceptance constitutes counteroffer and a rejection of the original offer; these are classical principles of offer and acceptance
·          Under modern theory of consideration, a promise is generally enforceable only if the promisee has given either a promise or a performance in exchange for the promise that that promisee seeks to enforce; must give consideration for option contract
Restatement 25: Option Contracts- promise which meets requirements for formation of a contract and limits promisor’s power to revoke offer
Restatement 36: Methods of Termination of Power of Acceptance- methods possible:
·          Rejection or counteroffer by offeree
·          Lapse of time
·          Revocation by offeror
·          Death or incapacity of offeror or offeree
·          Additionally, offeree’s power of acceptance terminated by non-occurrence of any condition of acceptance under terms of offer
Restatement 38: Rejection- power of acceptance terminated by rejection of offer unless offeror has manifested a contrary intention; manifestation of intention not to accept offer is rejection unless offeree manifests an intention to take it under further advisement
Restatement 39: Counteroffers- offer made by offeree to his offeror relating to same matter as original offer and proposing substituted bargain differing from that proposed by original offer; power of acceptance terminated by making counteroffer unless offeror has manifested a contrary intention or unless counteroffer manifests a contrary intention of the offeree
Restatement 40: Time When Rejection or Counteroffer Terminates Power of Acceptance- rejection or counteroffer by mail or telegram doesn’t terminate power of acceptance until RECEIVED BY OFFEROR; subsequent acceptance must be received before rejection or counteroffer is received
Restatement 43: Indirect Communication of Revocation- power of acceptance is terminated when offeror takes definite action inconsistent with intention to enter into proposed contract and offeree acquires reliable information to that effect
Restatement 45: Option Contract Created by Part Performance or Tender- when offer invites acceptance by performance and not by promise, option contract is created when offeree tenders or begins invited performance or tenders a beginning of it; offeror’s duty of performance under such an option contract is conditional on completion or tender of invited performance in accordance with terms of the offer