Contracts A – Professor Wellman
Wayne State University
Keyed to: Knapp
Chapter One: Introduction
Contract ( R2d 1): An agreement between two or more persons not merely a shared belief, but a common understanding as to something that is to be done in the future by one or both of them.
Lawyer’s Definition of Contract: An agreement that has legal effect – creates obligations for which some sort of legal enforcement will be available if performance is not forthcoming as promised
The Sources of Contract Law
Primary: The Law Itself (prior judicial decisions, statutes, ordinances)
Secondary: Anything else that might influence a court
1. Common Law – Judicial Opinions
· Contract law developed as judge-made law
· Stare Decisis: adherence to past decisions or precedents (prior decision with facts similar to the case “subjudice (under adjudicate
· ion)” that the court feels obliged to follow and render a similar decision.
o A precedent is only binding if decided by same court or appellate court of higher rank in the same jurisdiction.
o Precedent law offers high degree of predictability – enabling those who so desire to order their affairs in accordance with ascertainable rules of the law & puts reins on what might otherwise be the natural proclivity of judges to decide case on the basis of prejudice, personal emotion, or other factors we might regard as improper grounds for decision. It also has the characteristic of being static & conservation, generally oriented toward preservation of the status quo. There will be times that a judge says blind adherence to precedent would be unjust in the present case.
· Cases that can’t be decided by precedent alone because:
o No precedent exists (unlikely)
o Applicability is unclear – courts turn to “policy”
§ Policy: any societal goal that will be furthered by a particular decision (may be economic, political, social, or moral – may have to do with the particular parties themselves or with the good of society as a whole)
2. Statutory Law: If there a statute, it must be followed. The legislature has ultimate law making power so long as it acts within the bounds of its constitutional authority. Legislature can modify or eliminate any of the rules of common law. “Legislative history” is looked at when a statute can be interpreted differently.
Contract law is predominantly judge-made, rather than statutory.
3. UCC – Begun in the 1940s within origins in the late 19th century
a. Major statute with general importance to all phases of contract law
b. Article 2: Sale of Goods – enacted by every state except Louisiana
c. The UCC does not govern all commercial transactions (ex. real estate, personal service contracts)
d. 1960: consumer protected statutes modified traditional contract principles (both federal & state)
4. Restatement (Second) of Contracts (1962-1979) : A persuasive but not binding source of contract law. It is an annotated summary of common law by the ALI (formed in 1923). However, the law in a given jurisdiction is not necessarily propounded by the Restatement.
a. Accurate and authoritative summaries of the rules of common law.
b. “Black Letter” statements of the “general rule” or (where cases appear to conflict) the “better rule”
c. R2d acknowledges some of the complexity of the first Restatement (1932) preferred to ignore & suggests a freer rein for judicial discretion.
d. Reflects a great degree, the influence of the UCC.
5. NCCUSL: National Conference of Commissioners of Uniform State Laws
· A national drafting body, the National Conference of Commissioners of Uniform State Laws proposes revisions to various UCC Articles from time to time. Each state legislature then makes its own decision about whether and when to adopt the proposed revision.
o No power to make law
o Drafted and recommended to the state legislatures, a series of “uniform acts” dealing with various commercial matters, such as negotiable instruments and bills of lading.
6. Legal Commentary – Clarification of the Law: Treatises
Samuel Williston: Law as set of abstract rules that courts could, by deduction, use to decide individual cases.
Arthur Corbin: Discover what the courts were actually doing & attempt to weave those findings into what he called, “working rules” of law.
The Perspective of Contract Theory
Willistonian Period: Contract law was viewed as a set of universal rules distilled from decided cases – it did not appear necessary either to explain or justify its existence.
Formalist Approach: Use virtually mechanical application of rules to reach a doctrinally “correct” result, judges have no use and are forbidden to use moral and political values in reaching decisions.
Goal: Efficiency! Laws and legal rules should lead to efficient outcomes and if they don’t, they should be modified
Sociological Jurisprudence: Court decisions are not products of the application of neutral principles to given set of facts, but rather as the end results of a decision making process in which both the finding of facts and the application of rules were affected by the personalities, points of view, interests and goals of decision makers.
Llewellyn: Law making is policy making, so formation of legal rules should be the result of a conscious application of all relevant knowledge of human affairs, rather than a process (real or pretend) of “discovering” neutral principles from which abstract rules could be deduced.
Practicing Attorney Roles
1. Counselor – identifying nature and scope of legal problems, their positions (consequences and predicting outcomes). identifying options available, helping client make choices and implementing them.
2. Negotiator – understanding clients’ needs and aspirations using legal skill and analysis to negotiate agreements, bargaining abilities and capitalizing on emotions
3. Drafter – putting agreements into writing; skill with words is a must – writing with economy, clarity, and precision
4. Advocate – present the most persuasive arguments you can on behalf of your client oral or written.
Contract Law Through Case Study: Two Examples From Different Periods in Time
Allen v. Bissinger & Feldman v. Google
Lessons from Allen v. Bissenger to Feldman v. Google
1. Wording is important
2. Expectations of the Parties
3. Regrets don’t matter
Why did the Google case not settle right away?
· Litigation is expensive, but Google wanted legal reinforcement so they can continue their business the way they want and avoid further situations by making click wrap license enforceable to everyone of their clients
Chapter Two: The Basis of Contractual Obligation – Mutual Assent & Consideration
First Restatement – 1932
Preference for clear rules –
ty. A few jurisdictions allow revocation when sent – however, this is the minority view.
Power of Acceptance
Received Acceptance Rule: Acceptance is only effective upon receipt. Gives the offeree no entitlement to enforce it
Nudim Pactim – A promise that means nothing in an offer
Offer & Acceptance in Unilateral Contracts
In a unilateral contract, the offer empowers the offeree to only accept by complete performance of the promise. The offeree’s failure to perform does not constitute a breach since no contract is formed until the offeree renders full performance.
Unilateral Contract: on party is a promisor and offeree’s renering of performance constitutes acceptance of the offer. [ex: A offers B $100 to walk across a bridge. B hasn’t’ promised to walk across the bridge, but if he agrees and does walk across, A is bound to pay and is in a unilateral contract. The contract is created when the act is done]
Petterson v. Pattberg – D had a bond secured by P with a 3rd mortgage. D offered to drop payment by $780 if P paid the quarterly payment by late April and the mortgage by the end of May. P paid the April payment, then went to D to pay the mortgage. D refused the payment and claimed to have sold mortgage to someone. The court held that despite P’s partial performance, D has the right to revoke agreement until performance was complete. Doesn’t matter if he was a doorstep away from completion.
In unilateral contract – offeror is allowed to be a “jerk” because at 9.9% of performance, can still revoke free from liability à this has now kind of gone away, unless specified in agreement. The offeror is the master of the offer and can set the terms of expiration and how it is agreed to.
R2d 30: Form of Acceptance Invited: unless specified otherwise, an offer can be accepted by ANY method or means.
Offer is revocable until the offeree’s full performance of the act(s) is called for. Then a binding contract is formed.
R2d 45: When an offeree tenders or begins the requested performance under a unilateral contract, the offeror is bound and cannot revoke the offer so long as the offeree completes performance in accordance with the terms of the offer. (Does this replace the ruling in Petterson v. Pattberg? Is this the result of that case’s outcome?)
Cook v. Coldwell Banker – P was a real estate agent for D. D made a bonus offer based on commission performance within three tier levels, each paying incrementally more. P reached her goal and received payment. Eventually, D changed the offer stating that P would have to remain working through March. P did not stay, and D would not pay her although she reached the highest tier. The court held that when a promise performs, consideration is applied and contract is enforceable to the extent performed. Thus, P performed before offer was changed, so D is bound by original offer.