Contracts
McWilliams
Fall 2011
What qualities must a private undertaking have to merit enforcement by public institutions?
· The first question when analyzing a contracts problem is:
o Is the K for goods or services?
· If goods, the K is governed by the UCC (Statutes that regulates the sale of goods) The UCC has been adopted by every state but LA, so it is binding authority.
· If not goods, then K is governed by the Restatement, the Common Law (regulates services or real estate, and anything else other than goods. It is a collection of persuasive authority.
◦ Goods: things that are moveable at the time of K.
◦ If not moveable (attached), it’s real estate
◦ Sale: transfer of title of goods
What if K is mixed with goods and services? We look to intent of the parties, what was the K originally for, what was most of the money paid for? The good or the service.
· One of the purposes of contract law is to encourage transactions, not discourage them. We want the law to promote order, advance social goals, advance predictability, and to be fair.
Rule: contracts you get expectation damages, which put the non-breaching party in the position they would have been in if the contract had been performed.
1. Policy: microeconomics underlines much of K law. Transaction costs lower efficiency. In a bargained exchange, each party ends up with something they value more highly than what they had before; doesn’t have to seem like equal exchange from objective viewpoint; this is economic efficiency; done out of selfish interests
2. Legal enforceability: the parties’ intention regarding whether a K is to be legally enforceable will normally be effective.
3. Presumption: Where the evidence is ambiguous as to the parties intent to be bound, it will be presumed that in a business context the parties intended their agreement but in a social or domestic situation, the presumption will be that legal relations were not intended.
· Two kinds of jurisdiction: Subject matter and personal.
· Traditional
o Process of agreement (making contract) and,
o Sufficient substance so that the court could make a remedy. What the parties intended to agree to.
· Today: We include fairness and social norms.
Classical/ Modern Theories of Law
· i. Classical – Williston – 1st Restatement
· 1. Preference for clear rules (legal formalism)
· 2. Indifferent to issues of morality and social policy
· 3. Reflects “deeper notions of laissez faire economics and limited governmental interference”
· 4. E.g., Eurice Brother’s case
Modern – Corbin – 2nd Restatement
· 1. More attentive to the needs of the commercial marketplace
· 2. Characterized less by rules, more standards
· 3. Interested in/more responsive to issues of social justice
· 4. Legal realism; activist judges
The basis of contractual obligation: Mutual Assent and Consideration
· Mutual Assent
· Basic requirement of an enforceable contract: (Re § 17). The formation of a contract requires
· “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration”
· Mutual assent – offer, or proposal of one party followed by acceptance of another party.
· Consideration – something of value that you exchange.
· Manifestation of intent – the written contract, the signature, a deposit
· Bargain – is the negotiation, a negotiated exchange. An allocation of risks and costs.
Parties can also incur legal obligations without entering into a contract. Sometimes, what’s enforced is a promise.
Undertaking = manifestation of an intent to do something.
Contract = a negotiated exchange – at the top of the list in our system of an “enforceable undertaking.”
Intent to be bound: the Objective Theory of Contracts
Ray v. William G. Eurice & Bros, Inc. (Maryland Court of Appeals, 1952)
o Rule of Law: A unilateral mistake in a bilateral contract does not make the contract unenforceable. You are bound by contract absent fraud, duress, or mutual mistake. The Court applies the objective “plain meaning rule” which gives their words an ordinary meaning as would a reasonable person intend.
• Benefit of the bargain: to put non-breaching party in position they would be in if K had been fulfilled.
· * Remember that a bid is an offer, but an estimate is a request for an offer.
· ** Willistonian Objective theory – one is ordinarily bound or not bound, not by her “secret intent” to that effect, but by the reasonable interpretation of her words and actions.
· Plain meaning rule: third party’s interpretation is binding. Despite parties intent, what the words typically mean will bind parties. (Willistonian – objective)
· Signed writing (K formality) shows an intent to be bound. These two make it clear that content is serious.
• “Complete breech” goes to the very heart of the undertaking, can bring an action for damages, gives significant rights to party who is suffering from breech.
• “Written contract” is important to identify the content on which the judge will rule. The writing is the manifestation referred to above, on what the parties intended to be bound to. (So the judge knows what remedies to apply) There are several ways to manifest intent, one of them is writing.
· Intent to be bound is necessary, but not intent to be bound to the contents.
• Fraud is an exception to everything. If Eurice brothers asserted that they had been tricked, they might have gotten out of it due to fraud.
Offer and Acceptance in Bilateral Contracts:
· Bilateral Contract: Promise exchanged for a promise. Each promise constitutes consideration for the other.
Acceptance of Offer; Acceptance by Performance; Acceptance by Promise (§50)
Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. (part performance).
Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
Preliminary Negotiations (§26): 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.
· The offeror is the “Master of the Offer” and may proscribe the method of acceptance.
• If no method of acceptance is mentioned, then any reasonable method is valid.
• An offeree who silently receives a benefit of services (NOT GOODS) will be held to have accepted a K for them if he cou
Sales (§2-106) – consists in the passing of title from the seller to the buyer for a price
Harlow & Jones, Inc. v. Advance Steel Co. (U.S. District Court, E.D. Mich., 1976)
Under UCC, contract doesn’t have to be complete at all. Price doesn’t even have to be included. An agreement was in fact made, even though not complete.
· Written forms were confirmatory memoranda.
◦ Conduct by both parties which recognizes existence of contract is sufficient for contract. Here, trade usage is a gap filler. Parties didn’t decide which delivery date was appropriate, but Court did when it considered usage.
· Under UCC, writings are not as important as conduct, unlike Restatement where writing is paradigm. UCC considers how people really work, and this way is more efficient.
· Formation in General (UCC §2-204):
1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognize the existence of such a contract.
2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
3. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy
Consideration:
· Magic – it makes unenforceable K’s enforceable. Promise standing alone is not enforceable, but if it has been exchanged for consideration, it is enforceable. Consideration is one contract formality among others.
Hamer v. Sidway (New York Court of Appeals, 1891)
· – Rule of Law: Relinquishing a legal right constitutes consideration because it includes a detriment and forbearance. It does not matter if the consideration provides a benefit to the promisor.
• Consideration (traditional common law definition, pg. 73): “A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.”
· (Identifies consideration with detriment to the promisee sustained by virtue of the promise.)
· Classical Rule: (Benefit/Detriment) Consideration may consist of Don’t need benefit and detriment, just one or the other.
· *Forbearance – Abandonment of some legal right in the present or limiting legal freedom of action in the future as an inducement for a promise is consideration.
· *Consideration does not always have to benefit the promisor.
· Note: Reasonable understanding of the offerree–even if a person does not intend an offer, if a reasonable person believes an offer has been made, then it is an enforceable offer.
