8/26/10- Tuesday- Sources of Contract Law
UCC- A Statute
o Revised Art I (2001)- already been adopted by several states
o Rev Art II (2004)- mired with controversy- not uniformly adopted
· Applies to:
o Contracts for sale of goods
o All sales by merchants to consumers
· How do we reduce international trade barriers
o Uniform Laws- CISG (convention on international sale of goods)
o CISG- Applies to business transactions b/w parties in member states
Perspectives of Contract Theory
o Formalist interpretation seeks to promote rule of law values and constrains the discretion of judges by limiting them to the autonomous text of the law.
o Facts and rules affected by personalities, points of view, interests and goals.
o Intertwining of economic, social and political views- “Situation Sense”
o Consider trade customs and business practices in the interpretation of the law.
· Economic Analysis of the law
o Focuses entirely on efficiency of outcome
· Chicago Theorists
o Falls w/in economic theory approach
o Conservative and noninterventionist
· Relational Scholars
o Emphasize good fair and fair dealings
· Critical Legal Theory
o Impossible to have a rational decision making system
o Reiterates existing power structure
o Feminists, race etc., perspectives of the law
Classical Theory of Interpretation
· Clear Rules
· Pacta sunt servanda
o Pacts should be respected
o Meeting of the minds
· Objective Theory of Law
Modern Theory of Interpretation
· Standards (Realism)
o Good Faith
· Morality and Social Policy
· Tuned in to the needs of the commercial world
· Subjective interpretation
o Leonardo v. Pepsi Co.- Harrier Jet Case, judgment for Pepsi.
Contract = Bargain
· Contract/ Bargain = Mutual Assent + Consideration
Rule of Bargain
· First: Contract without bargain.
o Bargain is the classical notion of contract theory. One can enter into a contract without going through the traditional bargaining routine (e.g., internet contracts)
· Second: Bargain without contract
o A bargain can result in a legal obligation even though there is no contract (promissory estoppel).
· Third: Tainted Contract (Bargaining Misconduct)
o Contracts negotiated after a bargain may still be tainted (minority, duress, etc.)
Mutual Assent- Intention
· Signifies “agreement” between the parties
· Restatement Sec. 17 requires “manifestation of mutual assent” (e.g., a signature)
o Implies that you understood and agree to whatever it is you signed
o Objective manifestation of meeting of the minds
o A true meeting of the minds is a subjective view, meaning that both parties actually agreed to the terms
o There is a promise being conveyed. A bargain is when there is an exchange of promises
· Specific intent or actions of the subjects (parties) in question
· Conduct of the parties from the point of view of a reasonable person
· Intent as gathered from interpretation of the actions
Intention to be bound
· Expression of the intention to be bound
o Apparent intent (manifestation of the intent
§ Reasonable Interpretation of Actions
The Manifestation of intention is the basis for creating a legal obligation of the promise.
Does every promise become a legally significant?
· To ensure a promise is legally blinding:
o Form- Put it in writing
o When the breaking results in an injury. The party suffered damages due to “Reliance” on a promise
· How does an unwritten promise become legally significant?
o When it changes the legal relationship bw the parties.
§ Private Autonomy
– People have the power to make contractual relationships- make promises. Person changes his legal relationship on his own volition. (You change your legal relationship by acting on the promise…e.g., You would not have gone to the movies had the other party not agreed to meet you there.)
– Promissory Estoppel
§ Unjust Enrichment
Advantages of the Form or the Legal Formalities
1. Evidentiary Functions
2. Cautionary Function- induces the right frame of mind
3. Channeling Function- lends legal credence (e.g., Seal)
Substantive Requirements for a promise to gain legal significance
· Intention (private autonomy
· Promissory Estoppel (reliance)
· Unjust Enrichment (Restitution)
Offer and Acceptance in Bilateral Contracts
· Promise for Promise- as opposed to a promise-for-performance
· In this arrangement both parties for both Promissors and Promisees
Offer gives the offeree power of acceptance, while invitation to offer does not.
Process of Forming a Contract
1. Offer- Futurity
2. Acceptance- Exchange of promise
4. Legality of Parties
5. Consensus Ad Idem (Meeting of Minds)
Lonergan v. Scolnick
Facts: D owned a tract of land… “If you are really interested, you will have to decide fast, as I expect to have a buyer in the next week or so.”
Issue: Was an actual offer made, thus creating a contract agreeing that D sell P land for $2500?
Rule: There has to be a “meeting of the minds” for a contract to be entered into.
Plaintiff claimed the Apr 8 form letter written by defendant was an offer when in reality it was simply a Preliminary Negotiation.
· 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.
Rules on Effective Date
’s duty of performance under any option contract so created is condition al on completion or tender of the invited performance in accordance with the terms of the offer.
§ Offeror is bound if offeree begins performance or tenders performance within the stated time period- because it creates an option contract.
Cook v. Caldwell Banker
Issue: Was there a breach of bonus agreement?
Rule of Substantial Performance- Substantial performance amounts to acceptance
· Offer may not be revoked when offeree has conducted substantial performance towards agreement.
*The shift in modern unilateral contract law is the protection of the offeree. In classical law, the offeree was seen as taking the risk when entering a unilateral agreement.
There are two types of remedies:
· Specific Performance
Contractual Remedies Protect
UCC (Uniform Commercial Code)
· Art II- Deals with Sale of Goods (any tangible movable property)
o Excludes services, real estate, intellectual property, lease agreements
· Applies to the following types of contracts:
How do common law and Art 2 work together?
· Rule 1: Where the article becomes applicable, it is used. Otherwise, common law controls
· Rule 2: Common law supplies the understanding of terms in the article.
Harlow & Jones, Inc. v. Advance Steel Co.
Facts: Breach claim brought by seller (Harlow) against Advance Steel (Buyer). Advance told VanAs he was interested in purchasing 1000 tons of the shipment of steel. VanAs relayed the msg to Greeve (pres of Harlow).
· July 9- Greeve mailed Stewart sales form confirming sale of 1000 metric tons of cold-rolled steel w/ shipment from a European port during Sep-Oct 1974. Harlow never signed or returned enclosed copy as requested.
· July 19- Steward prepared worksheet for the transaction in question and mailed Advance’s purchase order w/ the amt quantities, specs (w/ minor revisions) and shipping dates as Harlow’s confirmation form.
· July 25- Harlow received Advance’s PO
· Steel was shipped in three shipments
· Nov 14- Remaining balance of steel shipped from Antwerp
· Nov 27- Steel arrived in Detroit
Oct 29- Dated letter sent to Harlow rejecting final shipment for