Contracts Outline

Contracts Outline

I. Introduction to ContractsA. Contract: An agreement between two or more persons that has a

legal effect. Must have “mutual assent” or “meeting of the minds.”

1. Express Contract – true expression of words (verbal or written)

2. Contract Implied in Fact – based on conduct3. Three elements that can be called a “contract”

a. Agreement in fact between two partiesb. An agreement as writtenc. Set of rights created by agreement in fact or as

written4. 2 types of contracts:

a. Bilateral – an exchange of a promise for another promise.

b. Unilateral – an exchange of a promise for performance.

i. Only party that makes promise is boundii. Offeree never becomes obligated to perform

iii. Offeror not bound until accepted by offeree – performance is acceptance

B. 2 categories of source of law:1. Primary – “the law” must be followed. Can be mandatory

or persuasive (persuasive if it is a law in a lower court or another jurisdiction, therefore a higher court or a court in another jurisdiction can follow it if they want to, but they do not have to)

2. Secondary – Articles and opinions of court cases. Not “law” or legally binding. Almost always persuasive.

a. Example: Restatement of Contracts (1932 – Llewellyn and ALI) – court has choice of either following the common law (primary) or the Restatements (secondary).

C. Stare decisis: if a case has been decided, the court has to decide their case based on that previously decided case – must be virtually identical.

D. Corbin and Williston1. Williston – “black letter law” formalist approach.

Regarded law as a set of abstract rules courts could by deduction use to decide in individual cases. Did not use moral or political values in decisions.

1

2. Corbin – realist approach geared toward discovering what courts are actually doing and weave the findings into “working rules” of law.

II. Mutual Assent - “Meeting of the Minds” - required for a contract to be formed.

A. Elements:1. Objective view – Intent (or manifestation) of willingness to

enter into a bargain constituted an offer. a. Contract has nothing to do with personal or

individual intent of the parties, rather the action that represents that intent. If that action manifests an intent that a reasonable person would believe is an offer, that action constitutes the offer, not the actual intent of the offerer.

b. Restatement of Contracts Section 70: One who makes a written offer which is accepted, or who manifests acceptance of the terms of a writing which he should reasonably understand to be an offer or proposed contract, is bound by the contract, though ignorant of the terms of the writing or its proper interpretation.

2. Reliance:a. Refers to offeree’s reasonable right to rely on

offeror’s offer for which there is a legal ramification for offeror not upholding (breach of contract)

III. Offer and Acceptance : Bilateral Contracts (exchange of promise for another promise)

A. Offer: a manifestation of willingness to enter into a bargain. Offer empowers offeree to accept. Dispute is typically whether there is an offer or an acceptance in contract cases.

1. To determine if a correspondence is an offer:a. Look at language – even if term “offer” is used, it

may not be an offerb. Consider to whom statement is being made – if

made to a large group, is likely an invitation to an offer

c. Look at details surrounding statement – more details, the more likely the person intends to be bound

i. Exception: Limiting Language - language that prevents offeror from opening themselves up to unlimited liability. (Language must sufficiently limit boundaries of liability)

2

1. example – offer of a reward for return of a dog (only one person can bring dog back)

2. example – ads “first come first served,” “while they last”

B. Acceptance: a manifestation of an assent to an offer. 1. Can be accepted only by party to whom it is communicated2. Must follow how offer dictates how acceptance should be

C. Counter-offer 1. A counter offer is considered a rejection …. No contract

D. Rejection1. No contract

E. Events that can terminate an offer (by offeror)1. Revocation – General rule: even if offeror states that offer

will remain open for a stated time, offeror can still revoke any time before acceptance

a. Can be verbally communicatedb. Can be revoked by offeror acting inconsistently

with offer (ie selling to another)c. Must be communicated before revocation is

effective i. If done by a 3rd source, it must be a reliable party

2. death or incapacity of offeror, offeree a. does not have to be communicated

3. lapse of timea. If time is stated, offer terminates at end of time

stated b. If no time stated, offer terminates within a

reasonable timec. General rule is that offer lapses at end of

conversation to accept unless there is an indication that offeror intended to give offeree more time

4. rejection by offereea. Outrightb. Counteroffer

i. “Mirror Image Rule” – acceptance must mirror the offer or there is not an acceptance (therefore counteroffer not an acceptance)5. Exceptions

a. “Grumbling Acceptance”(ex. If buyer offers “$90,000” and seller says “too low” – the original offer by buyer is still open as this is not an official counteroffer

3

b. Inquiry (ex. Seller says “Can you give me $95?” – offer still open b/c this is an inquiry, not a counteroffer)

6. Option Contract – Offeree provides consideration to have offer held open. Consideration can be nominal.

a. ex. Offeree pays $ to keep contract open for 90 days. If they reject but then accept within those 90 days, acceptance is good and rejection irrelevant.

b. NO Mailbox Rule – acceptance effective when received.

c. Unilateral Contract – Section 45 – if part of performance tendered, an option contract has been instated

IV. Offer and Acceptance: Unilateral Contracts (exchange of promise for performance)

A. Elements1. Offeror not bound until offeree has completed performance2. Offeree never becomes bound

B. Revocation1. Williston’s view – offeror may see the approach of the

offeree to accept the offer once performance is completed and still be within rights to revoke it even with full knowledge that acceptance is contemplated

a. Problem: Offeror can revoke offer when offeree in middle of performance b/c offeror never bound. Puts offeree in vulnerable position

2. “Corbinization” - Section 45 of Restatements - Revocation of Offer for Unilateral Contracts

a. If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time. (most jurisdictions now follow this rule)

b. Still no acceptance until completion

C. Restatement 2nd § 32 – unless language or circumstances (such as “I’ll give you $50 if you win contest) indicate otherwise, it should be assumed that offer may be accepted either by a promise of performance in return or by an actual rendering of that performance.

4

1. What offeror is seeking determines whether unilateral or bilateral (courts try to see contracts as bilateral if at all possible)

a. Bilateral: Offeree must notify offeror either verbally or by beginning performance.

i. If offeror seeking a promise and offeree does not verbally accept promise but begins performance, that is seen as a promise.

b. Unilateral: If offeror seeking a performance, offeree is not required to give notice of acception. Performance constitutes notice.

i. Exception: if performance would not ordinarily come to attention of offeror, offeree must give notice within a reasonable time after completion of performance.

ii. If result can’t be promised (ex. Cook Case), indicates unilateral contract

D. Silence – generally not considered acceptance1. example: “If I don’t hear from you within 10 days, I will

assume you have accepted” = not binding2. exception: if some past relationship dictates that silence

can be acceptanceE. Mailbox Rule

1. Acceptance effective when SENT if manner sent is reasonable.

a. Offeror can be bound by contract before they know about it.

2. “Vacillating Offeree” – ex. O’ee puts acceptance in mail Thursday. Puts rejection in mail Friday. Rejection arrives Friday. Acceptance arrives Saturday.

a. Under mailbox rule, offeror bound b/c acceptance sent first.

b. However, if reliance of offeror on rejection (such as having sold item) can be proven, offeree estopped from asserting mailbox rule.

3. If rejection goes in mail first, no mailbox rule. Whatever arrives first prevails.

4. “At will employment” – employee working at will of employer. Employee has no rights and employer could terminate employment at anytime for any reason.

a. Split of authority regarding this issueV. Consideration – imposes legal liability on party and is required for formation

of contract (Gratuitous Promise v. Consideration)A. Benefit/Detriment Theory (traditional view)

1. benefit to promisor OR2. detriment to promissee

5

B. Bargain Theory (more modern view)1. Elements (all must be answered yes)

a. Promise by promisor? i. Promise: an assurance that a thing will or will not be done

ii. If promise made in jest, court must look to surrounding circumstances, such as personality of person, wealth of person, etc.

iii. Promise v. Future intent – future intent does not form a promise

iv. Illusory Promise – a promise that appears to be a promise, but really is not a promise. Leaves performance of contract to promisor’s control. (ex. “I promise to pay when I feel like it.”) Leaves it unclear as to whether or not promise is going to come

(Good Faith rule followed in modern law and can overrule an illusory promise)

1. Requirements Contract – agreement between buyer and seller that buyer will buy everything she needs from one seller. Problem: buyer may never need anything. (Now governed by UCC)

2. Output Contract – agreement between a buyer and seller that seller will sell everything she makes to the one buyer. Problem: seller may never make anything. (Now governed by UCC)

3. Contracts Terminable at Will – unenforceable unless there is notification of termination of contract, which prevents contract from being illusory.

a. Exception: employment at will

b. Promise or performance by promise? i. Can be in the form of a forbearance – giving up the right to do

somethingii. Settlements and invalid claims – if two parties come to

settlement and it is later found to be an invalid claim, parties are bound to settlement. Courts favor settlements. (exception – fraudulent claims)

c. Did promisor seek performance or promise? i. May be inferred based on circumstances

ii. Gratuitous Promise with a condition (ex. “I will buy you lunch if you walk around the corner to the cafeteria.”) – must determine if it benefits promisor. If so, may be consideration.

6

Does not have to be a tangible benefit (ex. could be a better company image)

d. Did promisee give performance or promise in exchange for promisor’s promise?

i. Must be subsequent promise for futureii. Past consideration is not valid for this element (ex. reward for

lost dog. Person returns dog not knowing of the reward. Then finds out about reward. Cannot then claim the reward b/c dog not returned for purpose of receiving reward.

iii. Can phrase the promise as “for value received” or “in consideration for” but this does not mean consideration has been given.

C. Exceptions:1. Gratuitous Promise – giving something for nothing.

Unenforceable even if a detriment is incurred (Kirksey v. Kirksey)

2. Peppercorn Theory of Consideration – anything will suffice for consideration not matter how small the thing is as long as it is bargained for. Court will not look at inadequacy.

a. Exception – if gross disparity, court will look at b/c could be indicative of fraud, duress, pretense, sham, etc.

b. Exception – Restatement – if a party states an amount given in consideration and amount not paid, consideration is given (policy – should be able to believe what a party writes)

D. Gratuitous Promise – the giving of a gift without the expectation of anything in return

1. Not legally enforceable as a general rule2. Always ask what is benefit to promisor in determining a

gratuitous promise

VI. Promissory Estoppel – basis for recovery based on unbargained for relianceA. Stops promisor from asserting that there is no consideration

B. Equitable Estoppel – If a party misrepresented fact that other party relied upon, court would hold party to promise.

1. Extended into theory of promissory estoppel based on promise rather than misrepresentation of fact

C. Elements (all must be met) 1. Promise by Promisor?

a. An assurance that a thing will or will not be doneb. Future intent does not form a promise

7

c. May be inferred by actions, conduct or manifestations

d. Will sometimes relax requirements for promise (ex. sometimes an offeror will do everything but expressly or impliedly promise)

2. Did Promisor reasonably expect promise made to induce either an action or forbearance

a. (Restatement 1) of a definite and substantial nature?b. (Restatement 2) by promise or by 3rd party?

3. Did promise induce action or forbearance by promise? a. Act must flow from promise

4. Is enforcement of promise necessary to avoid an injustice?a. Detrimental reliance? Actual or legalb. Action should be of definite and substantial

character (acc. to First Restatement)c. Must be foreseeable reliance

D. Exceptions:1. Charitable Subscriptions: an oral or written promise to do

certain acts or to give real personal property to a charity or for a charitable purpose. Giving money without expectation of anything in return.

a. Majority Rule – Use objective standard. All 4 questions must be answered in affirmative. General Rule: When a person makes a donation to a charity, the promise will not be enforceable unless there is consideration or reliance

b. Minority Rule – none of questions need to be addressed. (Applies only when analyzing under 2nd

Restatement)2. Restatement §87 – applies to option contracts between

subcontractors and general contractors.a. Situations where an offer has been made and the

offer is relied upon prior to acceptance.b. Subcontractor ---- General Contractor ----- Owner

(General contractor relied on subcontractor’s bid for his own bid but has not yet accepted subcontractor’s offer because his bid has not yet been accepted.)

i. Three Views:1. Baird (Minority) – reliance will not

cause offer to become irrevocable. Offeror can still revoke prior to acceptance.

2. Drennan (Majority) – uses §45 – if reasonable reliance shown, offer cannot be revoked and offeror must

8

give offeree a reasonable time to accept

3. Use of bid (Minority) – constitutes acceptance with condition that general contractor receives overall contract (conditional upon being awarded) Acceptance immediately after general contractor awarded project.

VII. Restitution – Unjust enrichment. One who benefits at the expense of another is required to make restitution if unjustly enriched. (separate body of law)

A. When someone performs a service for another without being asked or without bargaining. Performer must expect compensation at time service is rendered.

B. Quasi Contract (Contract Implied In Law) –legal fiction - no intent needed – imposed to justice

C. General Rule – If A does a voluntary act for B without B’s request, it was gratuitous and A cannot seek restitution.

1. Exception – if done in a professional capacity, unrequested services may be compensated.

D. Elements:1. Benefit and enrichment conferred on one party

a. Detriment to promisor irrelevant. Court only concerned with receipt of service or benefit.

2. Unjust to retain without compensating performer for service?

a. Unjust if person acting in a professional capacity without consent. If a layperson, must be an extreme burden incurred.

i. Restatement of Restitution §116 – Recovery for Service performed to preserve another’s life or health

1. Unofficiously acts – necessary, not meddling. Warranted acts.

2. With intent to charge3. No opportunity to obtain consent4. No reason to believe consent would

not be givenii. Restatement of Restitution §117 – Recovery of Services

performed to preserve another’s property1. Unofficiously acts2. With intent to charge3. No opportunity to obtain consent4. No reason to believe consent would

not be given

9

5. In lawful possession of property or to be on property

6. Services not made necessary by party’s breach (Plaintiff did not cause risk to property)

7. Services acceptediii. Mechanic’s Lien Statutes – Generally used in construction

industry to protect subcontractors. Allows subcontractors to place a lien against a property for unpaid services or supplies. Property owner may require a general contractor to have lien waivers from all subcontractors before owner will pay general contractor

1. Common Law Application – question is whether owner has paid in whole or part for services. Will support the argument that owner is not unjustly enriched by services.

iv. Relatives – must show intent to charge for servicesv. Recovery – value of services rendered is what is looked at, not

the defendant’s actual benefit.

VIII. Promissory Restitution – occurs when a party comes back after the conferring of a service and promises to pay, then refuses to do so.

A. Traditional Rule – moral obligation not sufficient consideration for an express promise, and absent any prior legal obligations, such as debt or bankruptcy, promise not enforceable. (Mills v. Wyman)

1. Can be implied through conduct of promisor (ex. SOL for creditor expired. However, debtor makes a payment on debt. Debtor acknowledges the debt and held to the promise to pay the debt)

2. Exception: If a person promises to pay a prior obligation after the SOL to collect payment of the obligation, promise enforceable for amount person promised to pay originally.

B. Modern Rule – When promisor promises to pay for a service subsequent to rendering of the service, promise is enforceable when promisor has directly received a material benefit (ex. saving life by falling with block of wood from 2nd floor – Webb v. McGowin). Promise enforceable to degree that promise not disproportionate to benefit received. In this case, a legal obligation flows from a moral obligation.

C. Restatement of Restitution Rule – a subsequent promise to pay will be enforceable to the extent necessary to avoid an injustice, provide the service was not gratuitous (person intended to be compensated) Restatement has not decided whether a promise is binding when benefit does not directly go to promisor.

10

1. Court can base amount rewarded on value of service, not on promise.

IX. Obligation in the Absence of Complete Agreement: Limiting the Offeror’s Power to Revoke

A. Bilateral Contracts – some situations where offeror must rely on the offer prior to acceptance

1. General Contractor/Subcontractor relationshipa. Minority Rule (Baird v. Gimbel) – in

subcontractor/general contractor situation, reliance will not cause offer to become irrevocable and offeror can still revoke before accepting.

i. General contractor can protect themselves from this rule by using a conditional acceptance (“My use of your bid is my acceptance and is conditional upon my being awarded the contract.”)

b. Majority Rule (Drennan v. Star Paving Co.) – uses §45 – if reasonable reliance is shown, the offer cannot be revoked and offeror must give offeree a reasonable time to complete (ex. use of subcontractor’s bid by general contractor to generate a bid of their own to obtain a building contract)

i. Exceptions: 1. reliance must be reasonable. 2. general contractor put on notice of

mistakec. Use of bid rule – constitutes acceptance with the

condition that the general contractor receives the overall contract and is conditional upon the project being awarded. Acceptance is immediately after the awarding of the project to the general contractor.

2. Complex negotiations can create reliancea. Example: Pop’s Cones v. Resorts International

3. Bid shopping/Bid chopping - must look to see if general contractor is accepting or making a counter offer.

a. Subcontractor bound, General not bound (not entirely fair)

B. Option Contract – created when an offeree gives consideration to the offeror to leave the offer open for a stated amount of time during which the offer may not be revoked.

1. Consideration can be nominal2. If offer rejected within the timeframe offer is supposed to

remain open and then accepted within that timeframe, the rejection is no good and the acceptance makes the contract binding.

3. Example case:

11

a. Berryman v. Kmoch – consideration was never paid, therefore, no option contract

C. Firm Offer – Statutory exception that creates a situation where an offer is irrevocable without consideration

1. Elements:a. Offer is thereb. Made by merchantc. To buy or sell goods (moveable items)d. In a signed writing (can be on letterhead)e. Gives assurance that it will be held open.

2. Offer irrevocable for time stated not to exceed 3 months maximum.

3. If no time stated, offer irrevocable for a reasonable amount of time not to exceed 3 months.

4. Even if offer states “held open for 125 days,” offer only irrevocable for up to 3 months. (unclear as to what happens to it after this point)

5. Example Case: Mid-South Packers v. Shoney’s – the proposal indicated an intent to be bound = offer.

X. Battle of the Forms: Qualified AcceptanceA. Statutory Rule: an acceptance must exactly mirror the offer or

you have a counter offer (mirror image rule)B. “Last Shot Rule” – (traditional rule) buyer’s offer is the offer and

seller’s acknowledgment is the acceptance. If the two forms contain different terms, the buyer accepts the seller’s terms if payment is remitted and the goods are accepted.

C. UCC §2-207: allows an acceptance of an offer even though the terms vary from the original offer. (applies only to the sale of goods, however, not required to be between merchants and not required to involve forms)

1. Offer based on forms that manifests an intent to be bound? (usually the purchase order)

2. Acceptance? (usually the acknowledgment)3. Additional terms in acceptance or confirmation?

a. Yes i. Express assent to additional terms in acceptance? (Acceptance

actually says, “expressly made conditional on”)1. Yes – IS NOT an acceptance (c/o)2. No – IS an acceptance = contract

ii. Additional terms become part of contract UNLESS1. Not between merchants2. Offer expressly limited the

acceptance to the terms of the offer, …OR…

3. Offeror rejects terms in reasonable amount of time …OR…

12

4. Terms materially alter agreement a. Surprise (catch buyer

unaware) ORb. Hardship (substantial

economic hardship) 4. Different terms in acceptance or confirmation?

a. View 1 - different terms never become part of offerb. View 2 – different terms treated same as additional

termsc. View 3 – “Knock Out Doctrine” – different terms

cancel each other out and neither term comes into play

5. If no offer based on forms, offer based on conduct?a. No – no contractb. Yes

i. Terms?1. Terms parties agreed on AND2. Supplementary code terms

6. Confirmations in relation to §2-207 –ONLY applies when there has been a prior agreement.

a. If an agreement has been reached, either the buyer or seller (or both) will send written confirmations to the other. The tendency is for additional terms to be included here.

b. Has there been an agreement prior to the confirmation?

i. No – no contractii. Yes – go to question 2 in §2-207 analysis re. terms.

XI. Agreement to Agree – contract to enter into a future agreement A. 3 situations

1. parties purport to agree (“first class house” example)2. parties omit or are silent regarding a term of the agreement3. parties agree to agree “later”4. letter of intent – preliminary negotiations

B. Traditional Rule – Must be a definite standard or method for the court to decide the left out or ambiguous term or it is not enforceable (ex. Walker v. Keith)

C. Modern Rule – If court can find proof in intent to be bound, the court will find a way to enforce the agreement if there is a way to clarify the ambiguity or supply the missing terms. If price is term missing, court will determine a reasonable price based on market conditions and local indicators.

D. Letters of Intent – Court can find an enforceable contract if parties are looking to have a formal writing in a letter of intent. (same as agreement to agree)

XII. Statute of Frauds – Restatement of Contracts §§ 110 – 151

13

A. Covers contracts that must be in writing for 2 reasons:1. Prevent fraudulent claims2. Minimize mistakes of ill thought out decisions

B. Courts dislike the statute and try to find ways around it to enforce agreements that would not ordinarily be enforceable under the statute by narrowly construing the provisions and hoping the contract falls under an exception.

C. Analysis1. Is it a type of contract that falls under the statute? If yes, 2. Is the writing requirement met?

a. If yes, it is enforceableb. If no,

3. Does the contract fall within any of the exceptions to the writing requirement?

a. Yes = enforceableb. No = unenforceable

4. Question 1: Contracts covered (MY LEGS)a. Marriage – agreement made in consideration of

marriageb. Year – promise that cannot be performed within one

year of its makingi. Look at when it was entered into and when performance will

end. (ex. K entered into on 1/1/02 for a 3 month contract. Performance begins on 11/1/02. Performance not complete until 2/1/02.)

ii. Courts will disregard fractions of a day (ex. one year K entered into on 1/1/02 and performance begun on 1/2/02, court will disregard one day so it will not fall under SOF)

iii. Promises of indefinite duration – if at all possible to be performed within a year, court will not consider it under SOF

1. Ex. “rest of A’s life” – A could die2. No matter how slim the chance is, K

will not fall into SOF if possibility of performance within one year.

3. Ex. “contract can be terminated in 90 days” – indefinite in duration. Must look at intent of parties – trying to be excused from K or that it must be performed in 90 days? Calling for performance w/in year or termination w/in year?

4. “Defeasance” different from “indefiniteness” (ex. A contracts to work for B for 5 years. A dies within 1st year. Contract has to be in

14

writing to be enforceable b/c A has not performed)

iv. Excusatory or termination clause – contracts with these clauses that cannot be performed within a year, must be in writing to be enforceable.

c. Land – promises to convey an interest in propertyi. Included lease agreements, option K or a total conveyance of

landii. Leases – any lease for more than one year will fall into statute.

Short term leases usually excused. (NC – lease can be up to 3 years w/o having to be in writing)

d. Executorship – Promise of administrator to pay debt of decedent from administrator’s funds

e. Goods – Contract for sale of goods for $500 or more (UCC §2-201) * see XIII

f. Suretyship – promises to answer for the debts of another

i. 3 parties: debtor, creditor, promisorii. Promise must be made to creditor, not debtor

iii. Must have underlying debt or obligation by debtoriv. Exceptions:

1. Novation – promisor promises to be solely responsible and debtor is released completely from debt (look to see if creditor is looking to debtor and promisor (suretyship) or just to promisor (novation)

2. Main Purpose Rule – if promise for promisor’s benefit (ex. mortgagee – mortgager)

3. Situations where debtor never became obligated (ex. P buys car for D. D pays car payments but D not obligated, P obligated)

4. Surety tells debtor he will pay but never tells creditor

5. Question 2: hWriting Requirementa. Memorandum – evidence of contract, not contract

itself. Can be almost anything. If more than one document,

i. If all documents signed by party being charged, no problemii. If one of documents unsigned, 2 views:

1. signed doc. must make a reference to unsigned doc.

2. papers considered together as long as on “face” of each document they

15

relate to same subject matter (better view)

b. Must contain:i. Identification of parties

ii. Reference to subject matteriii. Essential terms iv. Consideration must be reflected if not already given

6. Question 3: Exceptionsa. Main Purpose or Leading Object Rule (suretyship)

i. If main reason promise made was to benefit promisorb. Part performance doctrine (property interest)

i. Requirements:1. Possession AND

a. Improvements ORb. Part Payments

2. Plaintiff seeking equitable reliefii. Rent payment generally not sufficient for part performance

iii. Partial performance – not same as part performance. When plaintiff does something less than requirements of part performance of a service K, generally does not fall into these types of K’s – courts will grant restitution for money or time put into promise to avoid unjust enrichment.

iv. Divisibility Rule – if K not divisible, entire contract may be enforced. If is divisible, will be divided to extent performed.

c. Promissory Estoppel Exception (Alaska Democratic Party v. Rice)

i. Majority – Restatement (Second) §139 – promise which promisor should reasonably expect to induce action or forbearance on part of promisee or 3rd party and which does induce action or forbearance is enforceable notwithstanding the SOF if injustice can be avoided only be enforcement of promise. Enforceable to extent necessary to avoid an injustice.

ii. Minority – apply promissory estoppel exception as set out in first Restatement – limits application to cases where one of parties has been misrepresented (where p’sor promised to reduce to writing or misled p’see into thinking agreement not covered by SOF.

XIII. UCC §2-201 Contracts for sales of goods in amount of $500 or moreA. Three sections and steps to analysis

1. Must be in writing and contain:a. Quantity (except for output and requirements Ks)b. Signature of party being chargedc. Sufficient to indicate contract

2. Merchant’s exception – contracts between merchants may be enforceable even though writing not signed by party being charged

16

a. Was there a contract? If yes,b. Was there a written confirmation? If yes,c. Was confirmation received within a reasonable

period of time after contract formed? If yes,d. Did party have reason to know of its contents

(writing must be sufficient to indicate that a prior agreement had been reached) If yes,

e. If party did not object in writing to contents of confirmation within 10 days of receipt of confirmation.

f. * Note – party in receipt does not lose case, only loses argument of Statute of Frauds. Other party still must prove the existence of a contract.

3. Exceptions - §2-201(3)a. Part Performance – K enforceable to extent

payment has been made and accepted or goods received and accepted (ex. K for 5 deliveries at $500 each and no written contract. If one delivery made, K enforceable to that extent – one delivery)

b. Admission Exception – K enforceable to extent it has been admitted to as some part of court proceedings (ex. same scenario as “a” but admission to contract for one delivery, not necessarily a delivery. Enforceable for one delivery)

c. Specially Manufactured Goods – If goods not suitable for sale to other people in course of business (ex. business cards)

d. * If not between merchants and does not fall within an exception, back to common law rule that agreement must be in writing to be enforceable.

B. Writing Requirement1. Must be sufficient to indicate an agreement, AND2. Must contain quantity, AND3. Signed by party being charged

C. Differences in 2-201 and 2-2071. 2-201 – one party trying to enforce K and other trying not

to enforce K2. 2-207 – parties want K enforced, but must decide which

party’s terms to apply3. Ex. – A and B are merchants entering into a contract. A

sends B a confirmation with additional terms. B received confirmation, but did not respond. B ships goods and goods are defective. Goods worth $1,000. A brings action against B.

17

a. B would raise SOF defense under 2-201 b/c he does not want K enforceable. B would argue the agreement fails under subsection 1 b/c not in writing.

b. A would argue that K falls under subsection 2 b/c there was a confirmation received within a reasonable amount of time after agreement, B had reason to know of contents and did not object within 10 days of receipt of confirmation.

c. B loses. Now must look at K using 2-207. XIV. Content and Interpretation – when vagueness and ambiguity in language of K

A. Problem arises when:1. Ambiguity and vagueness in a document2. Poor communications with client such that K does not

contain everything client wanted (sloppy drafting)3. Developments occurred that the parties did not foresee and

did not provide for in K4. Purposeful use of vague language to allow parties to reach

an agreementB. General Principles of Interpretation – used when parties disagree

about the meaning of a term (ex. “chicken”)1. Must first decide if there is an ambiguity

a. Plain Meaning Rule – if meaning of term is clear on its face, court will not allow parties to present evidence of meaning of term. Meaning will depend on context. Majority of courts will allow parties to submit evidence to what something means, even if there is no ambiguity. Problem – what appears to be plain on its face is not plain on its face (ex. two ships with name “Peerless”)

b. Doctrine of Reasonable Expectations – primarily applies to insurance contracts

1. If a K is taking away a right the person is contracting for or something the person did not expect, then the person is not bound to these items and is only bound to things he expected.

2. One would not reasonably expect to find a provision that takes away the very protection you sought in entering the K (ex. burglary insurance, but then after burglary occurs, burglary does not fall within definition)

2. Tests to Intepretations

18

a. Subjective Test (Traditional) – try to determine what parties intended or meant

b. Objective Test – what a reasonable person would have interpreted the language to mean.

c. Modified Objective Test (Modern) – Ask: (1) What did parties intend? (2) Did either party know or have reason to know what the other party intended?

1. If party seeking to enforce K knew or had reason to know what the other party meant and the other party did not, then the K is enforceable in favor of the innocent party

2. If neither party knew or had reason to know what the other party was thinking, no meeting of the minds and no K

3. If both parties knew or had reason to know what the other party was thinking, each party equally at fault.

4. Note: does not require that buyer had actual knowledge, but rather reason to know. (ex. “Peerless” ship – if seller normally ships in Dec., buyer had reason to know that seller meant the Dec. “Peerless” and not the Nov. ship.

3. Factors that affect court’s interpretationa. Relevant circumstancesb. Principle purpose of agreementc. If 2 provisions in conflict, will look to see if one

provision is more general than the other and more specific provision will control

d. If a mixture of typed, handwritten, and pre-printed provisions in agreement, court will give preference to something handwritten over typed and typed over pre-printed. (more recent language more indicative of parties’ agreement)

e. Unequal bargaining power – ambiguity in K terms must be construed most strongly against the party who drafted agreement

f. Does not go against public policyg. Avoid an absurd result (Golden Rule)h. Will use context to determine what a term means.

Take word within context of sentence it is used in.C. Content

19

1. Unless K required to be in writing, is possible for parties to have an agreement that is a combination of written and verbal agreements. When more than one expression of an agreement, courts show preference for final expression of agreement.

2. Parol Evidence Rule (PER) – to the extent that the parties execute a writing that is and is intended to be a final expression of their agreement, no parol evidence may be admitted to supplement, explain, or contradict it.

a. Reasons:1. Where there is a writing of

agreement, writing tends to be a more reliable indicator of what agreement consisted of

2. If courts give preference to writing, this gives stability to parties’ transaction.

b. Courts have some hostility to PER b/c if it is strictly applied, agreement may be partially enforced.

c. Two schools of thought:1. Williston (traditional) – based on

belief that writing should be given preference under all circumstances

2. Corbin (modern) – based on belief that agreement should consist of all that parties intended it to be composed of, written or verbal

d. Requirements:1. Written K or agreement2. Dispute based on prior or

contemporaneous agreements or negotiations

e. Analysis:1. Writing?

a. No – no PER problemb. Yes, then

2. Integrated? – does it represent parties’ final agreement? (exam will say writing was integrated b/c it appears they had an agreement – nothing to discuss if not integrated!)

a. No – no PER problemb. Yes, then

3. Totally or Partially Integrated?

20

a. If totally, writing cannot be contradicted or supplemented (evidence cannot come in)

b. If partially, writing can’t be contradicted but can be supplemented by prior or contemporaneous agreements or negotiations b/c party did not intend for writing to be sole indication of agreement

4. Exceptions? (where PER will not keep prior and cont. negotiations out)

f. Determining Total or Partial Integration1. Williston –

a. Merger clause? – makes it clear that it is the entire agreement and negotiations have been merged into doc.

i. Yes – totally integratedii. No, then

b. Four Corners Rule – Does writing appear on its face to be entire agreement?

i. No, writing partially integrated and may be supplementedii. Yes, writing totally integrated UNLESS alleged consistent term would not have naturally been included in the writing (then partial)

a. Subject Matter test – to determine if alleged consistent term would not have been naturally included. Look to see what is subject matter of writing. Did writing deal with subject matter of alleged consistent term?

1. Yes, parties probably said everything they had to say about the term in writing and evidence will not come in.2. No, K is partially integrated and evidence will come in.

2. Corbin – a. More modern/liberal view – Restatement and Codeb. Not limited to Four Corners Rulec. Looks at intent of partiesd. Looks to all relevant circumstancese. Merger clause may not preclude evidence from being admitted

3. Exceptions - must look to see why party trying to bring in evidencea. Evidence to Explain – PER does not apply. Two approaches apply in

deciding when to admit extrinsic evidence to explain:1. Traditional – Plain Meaning Rule – If ambiguity in writing,

evidence is allowed. If meaning clear on its face evidencebarred b/c no need to explain something that is clear.

2. Modern – Reasonably Susceptible Test – Allows anything in that will give some insight into what a word means b/c a word

21

is always susceptible to more than one meaning (Ex. “Peerless”)

a. Is term reasonably susceptible to asserted meaning? If yes,

b. Court will allow evidence in to interpret meaningb. Collateral Agreement – a separate agreement on a subject matter distinct from subject matter of dispute. Evidence is allowed.c. Evidence to show K is invalid – PER does not apply. (Fraud, duress, misrepresentation, no consideration)d. Evidence to show effectiveness of K (ex. failure to satisfy a condition precedent)e. Evidence to reform – PER does not apply (ex. wrong quantity or price)

4. UCC §2-202 – Parol Evidence Rulea. Same analysis as aboveb. Differences from regular PER:

i. Oral contemporaneous agreements excluded. Only written contemporaneous agreements admissible.ii. If totally integrated, writing cannot be supplemented or contradicted by consistent terms. Only trade usage, course of dealing, and course of performance are allowed.

a. When a party is trying to introduce these practices, if they can reasonably be construed as being consistent with the express terms of the writing, they can come in. If not, the express terms will prevail.

ii. Trade Usage : deals with the industrya. Some type of practice in the context of a vocation, trade or place that has such regularity of observance that it would justify an expectation that that particular usage will be observed with respect to the parties’ transaction.b. No overall consensus as to how trade usage applies to someone new to an industry.

iii. Course of Dealing: deals with past behavior between parties that has created an expectation that it will be followed in the present transaction. iv.Course of Performance: deals with conduct of parties during transaction in questionv. Courts give more credence to evidence the closer it gets to transaction in question. Dealing over usage, performance over dealing.

XV. Supplementing the Agreement – “gap fillers” apply only when parties silent on termA. Parties have omitted terms, dispute between parties, and court is being

asked to supply terms. Categories of terms: a. Implied in Fact – when a court determines the intent of the

partiesb. Implied in Law – when a court implies a term in the agreement

to achieve a just result; does not deal with intent of parties

22

B. Terms court will imply in parties’ agreementa. “Best Efforts”

i. Promise that the parties will put forth a best effort to fulfill contract (ex. Lady Duff Gordon case)

ii. Usually applied to exclusive dealings contracts – where one party has exclusive rights to market or distribute some item made by another party. (ex. requirements K, output K, territorial distributorships, percentage leases (lease for percent of profit), real estate brokerage)

b. Good Faith – honesty in facti. Merchants – observance of commercially reasonable

standards.ii. Cannot say some acts are good faith and others are bad

faith. Must look at facts of case and reason from facts as to whether act was in good faith.

iii. At-will contracts – applies to these. Application very limited.

iv. Employee Handbooks – if manual sets certain procedures that must be followed for termination,k court may take one of two views:

1. Manual is binding. Failure to follow procedures is a breach of good faith.

2. Manual doesn’t matter – merely a promise that is not binding

v. Subjective Standard – applies to things of personal aesthetics, such as painting, poetry, sculpture. Person can reject product and cancel K if person honestly does not like object (even if others say it is fine). May revert to the reasonable person standard if there was a lot of work involved in the creation of the final product.

vi. Reasonable Person Standard – if the reasonable person finds work to be acceptable, then the K may not be canceled. (ex. painting a house or other commercial contexts)

c. Termination Requirementsi. In K’s of indefinite duration, a reasonable notice of

termination is required. (exception: employment at-will – court will not imply)

ii. Generally parties can make termination at will in the Kiii. UCC §2-309 – requires a reasonable notice and parties

will be bound for that period of time. Applies only to contracts for sale of goods.

iv. Amount of notice will depend on circumstances. Could be days, weeks, months, or years. Court will look at:

a. Time needed to recoup financial investment

23

b. Time needed to sell remaining inventoryv. Salespersons – if commission based, not a contract for

sale of goods. If salesperson is actually buying goods from manufacturer and reselling goods, there is a contract for sale of goods (Dealer-distributorship relationship as in Leibel case)

vi. If agreement provides for K to terminate upon occurrence of an event, then the court will not imply this term (ex. if sales drop for six months, contract will be terminated)

d. Implied Warrantiesi. Contracts for Sale of Goods – UCC provides for 3 types

1. Implied Warranty of Merchantability – a. When a consumer purchases a good, it is

implied that the good will bei. Of fair and average quality (ex.

AC unit)ii. Fit for purpose they were

intended (ex. AC unit will cool)iii. Conform to any affirmations on

label (ex. label says that AC unit will cool 1,000 sq. ft., it must cool a 1,000 sq. ft. area)

b. Exception: Goods rendered with a service are considered to be part of service and K is no longer under UCC provisions. Ex. Blood Shield Statutes – when blood products supplied as part of service, blood is considered part of service and party is precluded from raising warranty defense. X receives a transfusion and contracts Hepatitis. (whereas hair product not part of beautician’s service)

2. Implied Warranty of Fitness for a Particular Purpose: Arises when buyer is buying goods and seller has reason to know of particular purpose for which goods being bought and buyer relies on seller’s recommendations. Goods must be suitable for purpose. Applies even if goods are not defective. (Ex. Customer buys shoes for climbing. Salesperson knows of purpose and sells customer running shoes)

3. Implied Warranty of Good Title: when a person buys a good, the seller is ensuring good title.

24

No liens against property and property is not stolen.

ii. Residential Leases and Contracts for Sale of Real Estate1. Traditional – Caveat Emptor – “buyer beware”

– buyer responsible for inspecting dwelling and detecting defects in premises.

2. Implied Warranty of Habitability – applied to both residential leases and contracts for new homes.

a. Residential Leases – lessors obligated to provide fit and habitable premises

b. Purchase of Real Estate – applied to builders in regards to original buyer of house. Builder obligated to build a house that is free from material defects and that is fit and habitable.

i. Subsequent buyers – unsettled as to whether liability is imposed on builder.

ii. Commercial Real Estate – unsettled. Some courts: business owner is like home owner. Other courts: business owners better able to detect defects

c. Professional Services – when services provided in a professional capacity, there is no warranty b/c that professional cannot guarantee the outcome (ex. lawyer cannot say she is going to win case b/c she does not know what judge or jury will do)

25