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Wayne State University Law School
Wellman, Vincent A.

Contracts A – Wellman – Wayne State University – Fall 2012

I.  Overview.

A. Legal rules allocate entitlements. A makes an offer which entitles B to either             counter, decline, or accept. Once B does one of these, A is entitled to certain           responses.

B. Contract: An agreement between two or more parties that is a common            understanding as to something that has to be done in the future by one or all          parties.

1.Contract as defined by R2d: A 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.

2. Contracts can be written documents or they can be implied at every                    stage.

3. Legal Effect: Creates obligations for which some sort of legal                  enforcement will be available if performance is not forthcoming as                     promised.

a. It is possible to become legally obliged to a person without                                    entering into a contract (e.g., restitution or promissory estoppel).

b. Even if a contract is formed, there are ways out of it (e.g., the                                other party engaged in bargaining misconduct, like fraud, duress, or                                   undue influence).

c. Three Elements to a Contract:

1. Agreement-in-fact
2. Agreement-as-written (may not correspond with                                                       agreement-in-fact)
3. Rights and duties created by the above two elements

C. The Sources of Contract Law

1. Judicial Opinions: Judgement-made law, rules distilled from a                  composite of court decisions in prior cases.

2. Statutory Law: State statues regarding contracts.

3. The Restatements: A secondary but very persuasive set of rules set                    forth by the American Law Institute regarding contracts. “Black letter” rules               of the general rules. However, these are not laws; they are guidelines that                   may be adopted by certain judges or states.

4. Legal Commentary: Explanation of the Restatement, written by law                     professors. Again, these are not law, but they can be helpful in                    determining and understanding the Restatements and current laws. 

5. International Commercial Law: United Nations, conventions on               International Sales of Goods, etc.

D. Perspectives of Contract Law:

1. Classical: Clear rules over general standards; indifferent to issues of                 morality or social policy–reflects laissez faire economics and limited                   government interference in private transactions.

2. Modern: More attentive to needs of marketplace, less rules than               standards; more responsive to issues of social justice and economic                power–reflects influence of Universal Commercial Code (UCC) and case                      law.

3. Formalist Approach: Set of universal rules distilled from decided cases              with no need to explain or justify, no use for moral or political values.

4. Sociological Approach: Rules of law evaluated on basis of the social                 interests they serve.

5. Realistic Approach: Findings of fact and application of rules are affected                      by personality, point of view, interests, and goals of decision-maker. The                     formation of legal rules should be the result of a conscious application of                    all relevant knowledge of human affairs rather than a process of                  “discovering” neutral principles from which abstract rules can be deduced.

6. Economic Approach: Efficiency–1) “positive”/empirical argument = legal                        rules tend, in general, to reach “efficient” outcomes and 2) “normative”                   claim that “inefficient” rules of law should be modified in the direction of                      greater efficiency.   

E. The Lawyering Perspective?

II. CONTRACT FORMATION: The Basis of Contractual Obligation: Mutual Assent and Consideration

A. Two conditions for an enforceable promise (must have 1 of the 2):

1. Consideration

2. §90 reliance (promissory estoppel)

B. Two differences between classical law and modern law:

1. Classical contract law showed a preference for clean rules (“legal                       formalism”) over general standards (“reasonableness”).

2. Traditional contract law was relatively indifferent to issues of morality or                         social policy presented by contract cases.

C. Mutual Assent: Bargaining through offer and acceptance, ultimately either     reaching a deal (“a manifestation of mutual assent”) or breaking off negotiations.

1. A Contract can be formed, however, even when the parties do not                      engage in bargaining. (E.g., family members, friends, etc., even though                        they did not go through formal negotiation, may still result in a contract.                        “non-commercial transactions”)

2. There also can be legal obligations despite there being no contract.

3. Contract obligations can be relieved if the other party has engaged in                some form for bargaining misconduct.

4. Intention to be Bound: The Objective Theory of Contract

a. “Meeting of the minds” vs. “mutual assent”

1. “Meeting of the minds” is subjective; focuses on the actual                                                intention of the party, rather than that party’s conduct.

2. “Mutual assent” is objective; focuses on the conduct of the                                                parties from the perspective of a reasonable person rater                                           than their actual, subjective intentions.

b. Signing isn’t necessarily required for there to be a valid and                                 enforceable contract.

c. Post-signing regrets do not relieve you of the contract’s                              obligations.

d. Case: Ray v. Eurice Bros, Inc.  This case showed two important                            elements:

1. Wording is important, and so is timing.

2. Expectations of the parties – a certain circumscribed set of                                                 expectations.

5.  Bilateral Contracts: an exchange of promises – a commitment to                       some course of action to be undertaken in the future, and the commitment                      is on both sides of the contract (by both parties). Also known as “offer                        and acceptance.” This binds both parties once the acceptance is given.                   Both parties are both promisor and promisee since the offeree’s                         communicated acceptance also constitutes a promise to perform.

1. The Process of Negotiating:

a. The parties engage in a period of pre

                                                1. Offeree can withdraw at any time before completing                                                promise because acceptance = completion.

d. R2d §45: When offeree tenders OR begins the requested                                    performance             under a unilateral contract, the offeror becomes                                   bound and cannot revoke offer so long as the offeree completes                              performance in accord with the terms of the offer.

e. Unilateral vs. Option Contracts

1. Unilateral = no promise involved

2. Option Contract: There is an offer to sell and offeree                                             buys the option from the offeror which buys their promise not                                               to revoke the offer for a period of time.

a. The promise of an option contract is built in with a                                                   second promise not to revoke the first promise.

1. Promise to buy/sell under specified terms,                                                                 and

2. Promise to perform the first promise OR not                                                               to revoke first promise.

3. When B’s performance of Promise 1 begins,                                                                         Promise 2 kicks in and binds A. The promise                                                                 can only be revoked if B is given reasonable                                                                 time to accept A’s revocation.

b. Option offers are usually two-tiered.
Tier 1: The option contract components:

i. Matter
ii. Price
iii. Time

Tier 2: A promise not to revoke the offer.

c. The longer the option (the longer the amount of                                                    time that the promisor says the promise will not be                                                    revokable), the more valuable the contract will be.

d. The promise standing by itself is not enforceable.

e. Money or performance will constitute an option                                                    contract.