Contracts Outline
Professor Cook
Fall 2013
A. Types of Contracts
a. Express Contract
i. Formed by language, orally or written
b. Implied in Fact Contract
i. Formed by assent based on conduct (ex. buying gas)
c. Implied in Law
i. Not an actual contract
ii. Construed by courts to avoid unjust enrichment by permitting parties to bring action for restitution. Doesn’t depend on whether the element are proven because it is a tool of equity
B. Types of Remedies
a. Expectation Damages
i. Designed to put the party in the same position it would have been in if the contract hadn’t been breached
b. Reliance Damages
i. Designed to put the party in the position they would have been in if the contract was never made
c. Restitution Damages
i. Prevents unjust enrichment of the party who receives benefits at the expense of the other; requires the party in breach to return the benefits they received to the party who conferred it
C. Offer and Acceptance
a. Offer
i. The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
b. Acceptance
i. A voluntary act of the offeree whereby he exercise the power conferred upon him by the offer, and thereby creates the set of legal relations called a contract
1. The acceptance must be definite and unequivocal
D. Intention to Be Legally Bound
a. Objective theory
i. Mutual assent is the basis for a contract. However, a subjective meeting of the minds is not necessary. The courts use an objective measure where each party is bound his apparent intention. A person is held accountable for behavior that signifies intent
ii. Illustrating Cases
1. Leonard v Pepsico- guy tries to buy a jet with Pepsi points
a. Using an objective standard, it was unreasonable for the plaintiff to expect that he would receive a jet
2. Embry v Hargadine- employment contract
a. The inner intention of the parties is irrelevant if their behaviors/words used were sufficient to constitute a contract
3. Lucy v Zehmer- drunk guy sells land
a. Zehmer’s words and actions manifest an intent to agree
b. Interpreting Statements to Determine Legal Consequences
i. In certain cases, the relationship between the parties is not one that usually lends itself to a contract. The question is not whether there is an offer and acceptance, but rather a contract was created at all.
ii. Illustrating Cases
1. Gault v Sideman
a. Reassurances from doctors shouldn’t not be misconstrued as contract
2. Balfour v Balfour
a. Domestic agreements made between husband and wife are not enforceable
c. Express Statements Concerning Legal Consequences
i. It is rare that parties will make an agreement expressly stating that legal consequences will attach, but they often add clauses that state that their actions are not legally binding
ii. Letters of Intent
1. Written when both parties agree on certain terms of a future agreement. However, this usually only establishes the intention to continue negotiating and does not constitute a contract.
2. Illustrating Case
a. Venture v ZDS
i. ZDS is not bound by its letter stating that it intended to continue negotiations. ZDS didn’t break off negotiations in bad faith
d. Contemplation of Final Writing
i. Illustrating Case
1. Palmer v Fuqua
a. If the plaintiff could prove an intention to be bound, he may be entitled to recovery.
b. The memorandum stated that a “general understanding” had been reached and it was written in unqualified terms (will, shall, etc.). All that was left was the formalization of the contract. For all intents and purposes, the negotiations had been complete
e. Agreements to Agree—Missing Terms
i. Agreements to Agree amounts to nothing in the eyes of the law because the court wouldn’t be able to determine what negotiations would have produced and would, therefore, be unable to determine what damages, if any, were attributable to the breach
ii. Illustrating Case
1. Arbitron v Trayln
a. The escalation clause was an agreement to agree, but rather sets material terms for the future. Trayln acted in bad faith by breaching the contract.
b. It is ok for the parties to settle on a price after negotiations
E. Anatomy of Agreements—Offer and Acceptance
a. Preliminary Negotiations v Offers
i. Advertisements- Ads are usually only offers to deal, and not offers for a contract; however, if the terms are clear, definite, and leave nothing open for negotiatio
ed before the time limit stipulated by the offeror
c. Acceptances and Mailbox Rule
i. Mailbox Rule
1. The offer is considered to be accepted as soon as the offeree places the acceptance into the mail
d. Counter Offers
i. A counter offer changes the terms of the original offer and counts as a rejection of the former offer and the creation of a new offer. It negates the offeree’s power to accept
ii. Illustrating Case
1. Ardente v Horan
a. By adding additional terms and not making his acceptance absolute, the acceptance was considered conditional and constituted a counter-offer
e. Death or Incapacity
i. If the offeror dies or is incapacitated before the offer is accepted, the offer lapses even if the offeree didn’t know of the offeror’s death or incapacitation.
ii. Once the contract has been made however, death or incapacity doesn’t terminate the contract unless the contract expressly or implicitly states that it will
iii. Illustrating Case
1. Beall v Beall
a. The offer was revoked after the death of the offeror. The offeree didn’t give consideration for the option, so it was a mere contract with no option. IF the offeree had an option, he would have been permitted to accept after the offeror’s death
G. Making Offers Irrevocable
a. Option Contract—Rights of First Refusal
i. Option
1. The offeror promises to keep the offer open for a particular period of time in exchange for consideration from the offeree.
a. The consideration given must be separate from the consideration given for the offer
i. There is no need for a separate consideration when the option is part of a pre-existing contract; The option is guaranteed by contractual consideration
1. Example: Rights of First Refusal
b. Courts try to enforce an option as long as the time period isn’t unduly long and the parties formalized the option
