Contracts Outline

University of Texas School of Law
Contracts – Spring 2012
Professor Dammann
 
I. Introduction
A. A contract is a promise for the breach of which the law gives a remedy—Rest. §1
1. Sources of Contract Law
a) Statutory Law
(1) UCC—governs contracts for the sale of goods; it is uniform state law
(a) Service contracts are not governed by the UCC—they are governed by common law
(b) UCC has been very influential on common law
b) Common Law
(1) Most contracts, aside from sales of goods, fall under the common law and judicial precedent. 
(a) This includes most service contracts and real estate contracts
c) Restatement
(1) Not binding, but derives its authority from the fact that it is considered a good summary of existing case law, and courts often rely and/or refer to it in their decision-making.
(2) ***Unless a transaction falls into scope of UCC, we will generally assume that the applicable state law is identical to Restatement***
d) CISG:  5 Conditions for CISG to apply:
(1) Must be a sale of goods
(2) Both parties must be merchants (UCC does not require this)
(3) Both parties must be from CISG countries
(a) Most Western nations, except UK
(4) Both parties must have place of business in different countries
(a) i.e., if both from US, then UCC would likely apply if sale of goods, otherwise Restatement
(5) Both parties must not have opted out of the CISG
(a) NOTE:  Mandatory v. Default rule of law
(i) When you can opt out of a rule of law, then it is not a mandatory rule; thus, CISG is a default rule of law b/c you can opt out. 
(ii) Companies opt out a lot; most lawyers know one body of law well(e.g., NY law), so they want to use that law rather than CISG.  However, some use CISG because it levels playing field.
2. Unjust Enrichment Claims
a) These largely fall outside of tort law (b/c there is no claim based on a D “wronging” a Pl) and contract law (b/c no promise has been made nor breached).  But we still allow a claim based on the D being enriched at expense of Pl which is intolerably unjust
(1) E.g., doctor saves life of stranger on the streetàunfair to not pay.  If we give doctor no claim, then perhaps they will not be so generous next time (doubtful, absurd argument)
3. Family Relationships
a) E.g., parent owes child support.  No tort in the sense that parent has wronged child.  No contract either.  Nor has parent been “unjustly enriched” by the child.  Rather, it is the actual family relationship that provides a basis for holding parent liable.
 
II. Contract Formation
A. The Basics
1. For proper contract formation, we need 2 elements—mutual assent and consideration
a) Mutual Assent
(1) Two elements within Mutual Assent—(1) offer and (2) acceptanceà Rest. §22
b) Consideration
(1) Promise is only binding if the person to whom the promise is made (promisee) gives something back in return, a quid pro quo—the so-called “consideration”
(a) In most cases, this is another promise from the promisee. 
B. The Offer
a) Restatement § 24—An offer is 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
(1) Basically, to be an offer you need to make it clear that you want to enter into a contract (e.g., even at Burger King, when you order, that is an offer).
(a) It is the manifestation that counts; thus if you manifest willingness, but secretly don’t want to, doesn’t matteràcourts will find an offer to have been made.
(b) OFFER AND ACCEPTANCE MUST MATCH
(2) GENERAL RULE is we look at how a reasonable person would interpret such an “offer”
(a) Also imposes burden on the listener to interpret “offer” the way a reasonable person would
(b) HOWEVER, EXCEPTION:  If the reasonable meaning of the speaker’s words is different from what the speaker intended to say and the other party in fact knows what the speaker truly intended, then the intended meaning trumps the “reasonable person” meaning.
(i) E.g.. S owns a blue house on 1st street worth $1m, and a green house on 2nd street worth $2m.  S is colorblind.  S offers B to “buy the green house for $1m.”  B is aware that S meant to sell the blue house on 1st street (which is the one worth $1m).  B writes back: “I accept your offer to sell me your house on 1st street for $1m.”   Mutual assent?
(a) Yes.  Obviously the objective “reasonable meaning” of S’s words was for the green house (worth $2m) for price of $1m.  BUT, because B was aware of S’s intended meaning, that intended meaning trumps reasonable meaning.  Plus, B’s acceptance’s reasonable meaning is obvious to buy 1st street house for $1m.  Therefore, acceptance matches offer.
(b) Had B not accepted the 1st street house but rather maliciously accepted the 2nd street house, then no mutual assent b/c B knew S’s intended meaning.
(c) THUS, Restatement § 21à no mutual assent if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by other; or (b) each party knows or each party has reason to know the meaning attached by other
(3) Apply same standard when dealing with preliminary negotiations
(a) If offeree understood offer was part of negotiationsà no offer
(b) If offeree did not know, then inquiry becomes what would reasonable person have understood?
(i) The standard applies both for interpretation of offer and for determining if there even was an offer
(4) Every the time the question is whether the person actually expressed a will to make a legally binding promise or not.
(a) E.g., If Joe tells George he will swap his Maserati for G’s beat-up Ford, and G quickly accepts, is there a valid offer/acceptance.  NO.  A reasonable person would have known J was joking.
b) More Detailed Look at Offers
(1) Offer Without Words
(a) Any conduct suffices to be an offer if it can be reasonably interpreted to express the will to enter into a contractà e.g., if you go to BK, hand over $5 bill and point to menu for cheeseburger, that is an offer.
(i) Even if offeror’s conduct could not be reasonably interpreted as an offer, can still be one if other person understood offeror expressed will to enter into one.
(2) Preliminary Negotiations
(a) Rest. § 26—Manifestation of willingness to enter bargain is not an offer if the offeree knows or has reason to know the offeror does not intend to conclude a bargain until he has made further assent.
(b) So, if addressee knows or has reason to know it is just a part of negotiations, no legal offer
(3) Putting it in Writing
(a) Problems arise when parties plan to put contract in writing, but then make agreements before that document is created.  Mutual Assent?
(i) Apply the general rule.  Did both parties intend for oral agreement to be binding?  If so, then mutual assent exists.  If both did not intend that, then no MA.
(a) Second, if the parties differed as to how they perceived oral agreement, apply the reasonable-person standardàWould a reasonable person have concluded the parties wanted oral agreement to be binding.
(ii) Rest. § 27à Manifestations of assent that are normally sufficient to conclude contract will not be prevented from so operating just by fact that parties intended to put contract in writing.   However, largely depends on circumstances.
(4) Invitations to Make Offers (“invitatio ad offerendum”)
(a) Ads online, in newspapers, are typically not legal offers, but rather invitations for readers to make offers
(i) E.g., grocer putting can of soup on shelves is not he offer; when customer goes to check out, that’s the offer
(a) NOTE:  there are no hard and fast rules on this; very case-dependent.
(5) Vague/Incomplete “Offers”
(a) What if you offer apartment for rent but give no essential terms (e.g., location, price, etc.)  Offer?
(i) If the “offeror” does not specify essential terms, a reasonable person may well conclude that the offeror did not actually want to enter into bargain yet.  See Rest. § 33(3)
(ii) Rest. § 33à Even if there is intent to contract by offeror, it cannot be accepted unless the terms of the contract are reasonably certain.  Terms are reasonably certain if they provide a basis for determining the existence of a breach which allows for remedy.
(a) The more incomplete the “offer”, the more likely it is that it cannot be interpreted as an offer in eyes of lawà incompleteness leaves law with no way to fashion a remedy
c) CASE:  Lonergan v. Scolnick
(1) D places ad in paper for land.  Pl inquires about land, D responds on 3/26, writing form letter describing  land, directions min. price.  Pl 4/7 response: suggests bank for escrow, asks if he is at right place.  D says yes, but warns must decide soon, but does not give specific deadline.  Pl “accepts” D’s offer on 4/15, sets up escrow for $2500.  Before that response, D sold land.  Pl sues for breach.  Was a contract formed?
(a) RULE:  There can be no contract unless minds have met and mutually agreed upon some specific thing.  This is evidence by one party intending  an expression of fixed purpose to make a definite offer, which is accepted by other party.
(2) Here, the court treats