Contracts I Outline
Fall 2004
I.
A.
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B.
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C.
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D.
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E.
Overview
Elements of a K
Offer
Acceptance
Consideration
Assent
Mutuality of Obligation
Definiteness
Types of K’s
Unilateral “K” – Only one party is bound by its promise while the other party has the choice of
performing or not
Bilateral K – An exchange of mutual promises; each party is bound by the K
Output K – A buyer agrees to purchase all that a seller produces
Requirement K – A buyer agrees to buy whatever they require from a seller
Option K (Firm Offer) – A promise to hold a specific offer open to a specific person until a specific
time (must be supported by consideration)
Conditional K – Performance is not due until a condition is satisfied or an event occurs (i.e.
insurance)
Implied Terms
Good faith
Reasonableness
Promise to use best/reasonable efforts
Trade usage terms
Causes of Action
Breach of K
Rescission
Reformation
Quasi-K
o Promissory estoppel
o Restitution
Damages
Damages at Law
o Restitution
o Reliance
o Expectancy
o Nominal
o Whatever will avoid injustice
 Damages at Equity
o Specific performance
o Injunctive relief
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Contracts I Outline
Fall 2004
II.
A.
B.
Elements of a Contract
Offer
1.
An offer is a promise or commitment to do or not do something in the future – a manifest
intent to be bound
a.
The offeror is the master of the offer – he determines:
i.
What he commits to
ii.
How the offer is to be accepted (performance or promise)
2.
Advertisements – Generally an ad is an offer to sell at a certain price
a.
The ad must limit the seller’s liability (“while supplies last,” etc.); otherwise it is
merely an invitation to make an offer
3.
Option K (firm offer) – A promise to hold a specific offer open to a specific person until a
specific time (must be supported by consideration)
a.
Merchants – A firm offer made by a merchant is irrevocable even in the absence
of consideration
4.
Revocation of an Offer
a.
Before acceptance – An offer may be revoked at any time before acceptance
b.
After acceptance – An offer may be revoked after acceptance because of
mistake if:
i.
The other party knew of the mistake before acceptance
ii.
The offeror can show that the mistake was material
iii.
The mistake was not a result of negligence
iv.
It would be unconscionable to enforce the K
v.
If K is not performed, offeree can be returned to the status quo ante
vi.
The offeror made prompt notice of the mistake to the offeree
5.
Termination of an Offer
a.
Revocation (countermand)
i.
Effective when communicated to offeree
b.
Lapse (expiration)
i.
By its own terms
ii.
After a reasonable time
c.
Rejection
d.
Death or incapacitation of offeror
Acceptance
1.
An acceptance is a commitment to comply with the terms of the offer and a manifestation
that you understand the offer
a.
The offeror can determine how acceptance must occur
i.
Offeror cannot determine how rejection must occur
ii.
Inaction cannot be acceptance
b.
Acceptance is effective once the offeror receives notice of the acceptance
2.
Methods of Acceptance
a.
Performance – when offer seeks acceptance by performance, only performance
will suffice
i.
Acceptance occurs when performance begins – must necessarily relate
to the K
ii.
Part performance can constitute acceptance of an offer
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Contracts I Outline
Fall 2004
b.
c.
C.
iii.
Full or partial shipment of goods can serve as acceptance
Promise
i.
Performance will suffice if it is clear that it shows assent and commitment
ii.
To accept by promise:
(a)
Promise must be unconditional
(b)
Promise must mirror the terms of the offer
(c)
Promise must be an expression of commitment to assent
Unclear – Acceptance occurs when a reasonable person would consider the
words and conduct to indicate an intent to be bound
3.
Mailbox Rule – In the absence of a stipulation otherwise, acceptance is effective upon
dispatch of communication
a.
Rejection and Revocation – effective when received
i.
If acceptance is mailed before revocation, any revocation is a breach
ii.
Offeree cannot reject an offer after acceptance has been dispatched
4.
Mirror Image Rule (common law) – For acceptance to be a true acceptance, it must
mirror the terms of the offer, otherwise there is no assent
a.
If an acceptance changes the terms of the offer in any way, it is a counter-offer
5.
Last Shot Rule (common law) – When the writings of the parties differ, the last party to
send a document is the offeror
6.
Battle of the Forms – Occurs when standardized forms are sent back and forth
a.
Fallout Rule – The additional terms in the acceptance fall out if they materially
alter the offer
b.
Knockout Rule – If the additional terms in the acceptance materially alter the
terms of the offer, the conflicting terms in the offer and acceptance knock each
other out and the UCC fills the gaps
c.
K not between merchants – The additional or conflicting terms in the acceptance
fall out and are treated as proposals
d.
K between merchants – The additional terms become a part of the K unless they
materially alter the offer
i.
Courts are split on whether to use the knockout or fallout rule when
dealing with terms that materially alter
e.
UCC 2-207
i.
If terms of acceptance differ, it is still acceptable as long as the offeree
shows a definite expression of acceptance
ii.
If the additional terms substantially alter the offer, they are considered
proposals that can be incorporated into the K
iii.
If the conduct of the parties indicates the existence of a K, it is sufficient
to establish a K even if the parties’ writings were insufficient
Consideration
1.
Elements of Consideration:
a.
Promise
b.
Detriment
c.
The promise induced the detriment
d.
The detriment induced the promise
2.
Theories of Consideration
a.
Peppercorn – The court does not look at the adequacy of the consideration,
merely the sufficiency
b.
Sham Transaction – The court looks at the adequacy and sufficiency of the
consideration – consideration must have value
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Contracts I Outline
Fall 2004
c.
Gross Disparity – The court looks at the disparity between the promise and the
detriment – if there is a gross disparity, there is not sufficient consideration
3.
Forbearance from Bringing a Lawsuit – is sufficient consideration if:
a.
The person has a good faith subjective belief for bringing it and
b.
There is an objective, factual right to bring it
4.
Past Consideration – is not sufficient consideration because the detriment suffered by the
promisee was not bargained for by the promisor
a.
Moral Consideration – The promisee suffers a detriment that benefits the
promisor, and the promisor makes a promise that is induced by the detriment
i.
Some courts will find moral consideration sufficient if the promisor
received a substantial (i.e. life-saving) benefit and the detriment to the
promisee was substantial
5.
Employment Agreements – agreements signed at or shortly after employment; often noncompete covenants
a.
Some courts say that an employer gives up the right to fire an at-will employee if
the employee signs an agreement
b.
Other courts do not like that sort of ex post facto reasoning and find employment
agreements unsupported by consideration
6.
Illusory Promises – A promise which gives the party an unrestricted right to perform or
not to perform
a.
An illusory promise is not sufficient consideration
b.
Any restriction on the promise will make it not illusory and therefore enforceable
D.
Mutuality of Obligation – No illusory promises, both parties are committed to doing something
E.
Assent – Both parties understand the terms of the K the same way and agree to them
1.
F.
Determining Assent – Two tests are used together:
a.
Objective test – If the words and conduct of the parties manifest an intent to be
bound from a reasonable person’s perspective, then there is assent
b.
Subjective test – But if a party knows subjectively that the other party does not
intend to be bound, then there is no assent
Definiteness
1.
Definiteness and Assent – Related in that if the terms of a K are indefinite, the obligations
of the parties cannot be ascertained and so there can be no assent
2.
Implied terms – The court will imply terms to make K sufficiently definite:
• Reasonableness
• Good faith
• Fair dealing
• Duty to use best efforts
• Customs of the trade
• Course of dealing (how parties have dealt with each other in the past)
• Course of performance (how parties have performed this K)
3.
A court will only rule a K indefinite (and therefore unenforceable) if:
a.
K is still indefinite after incorporating implied terms
b.
K is still indefinite after examining external factors to try to ascertain definiteness
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Contracts I Outline
Fall 2004
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Contracts I Outline
Fall 2004
III.
A.
B.
Revocability of Offers
1.
Performance – An offer seeking acceptance by performance is revocable at any time
before performance. The offer becomes irrevocable once performance commences.
a.
Remedy for revocation
i.
Reliance damages – what was expended in reliance on the offer
ii.
Expectancy damages – what would have recovered if K was performed if
it can be shown that offeree tendered performance
(a)
Tendering Performance – Offeree can show that he was ready,
willing and able to perform and would have performed but for the
revocation of the offer
2.
Promise – An offer seeking acceptance by promise becomes irrevocable to the extent
necessary to prevent injustice
a.
Subcontractor bids – Irrevocable upon submission
Promissory estoppel/detrimental reliance
1.
C.
Pre-Contractual Liability
Elements
a.
The promisee must reasonably and justifiably rely on the promise
b.
There must be a reasonable expectation of reliance on the part of the promisor
c.
It would be unjust under the circumstances not to enforce the promise
Restitution
1.
Restitution is often called a “contract implied by law” since it is based on an implied
promise
2.
Elements
a.
A benefit was conferred on the promisor with the expectation of payment
b.
The promisor was unjustly enriched – it would be unjust for the promisor to retain
the benefit without paying for it
3.
Defenses
a.
The benefit was conferred gratuitously (gift)
i.
Generally, assistance given is done so gratuitously except when a
professional renders his professional services
b.
The benefit was part of a K, so the K applies
c.
The benefit conferred is not measurable or quantifiable
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Contracts I Outline
Fall 2004
IV.
A.
Types of K under the Statute of Frauds
1.
2.
B.
Statute of Frauds
Executor/Administrator K – Executor of an estate promises to pay the debt of the
decedent
Surety K – A third party promises to pay the debt of another
a.
Only applies when the surety is not liable and would not be liable but for the
suretyship
b.
Must be a promise made by a third party to the creditor, not to the debtor
c.
Does not apply when the debtor and third party have independent obligations to
the creditor
d.
Main Purpose Doctrine – A surety’s promise to pay the debt of another is not
within the SoF if the surety’s main purpose in making the promise is to benefit
himself and not the debtor.
3.
Marriage – K made in consideration of marriage
4.
Land – K for any sale for any interest in land or any K transferring any interest in land
a.
Includes leases (except those less than or equal to one year)
b.
Includes any interest in land (house, crops, etc.)
5.
K greater than one year – Any K that cannot be performed within one year
a.
Points of reference for determining the year period:
i.
Time the K was made
ii.
Time performance is to be completed
b.
Probability vs. Possibility – Most courts look to see whether it is possible for the K
to be performed within a year, even if it is not probable. If so, the K does not fall
under the SoF, even if performance actually took longer than a year
c.
Excuse vs. Termination of Performance
i.
Excuse – indicates performance is complete; not within SoF
(a)
Ex: A promises to work for 5 years if he lives that long. A dies
after 6 months. A’s performance is excused.
ii.
Termination – indicates performance is incomplete; within SoF
(a)
Ex: A promises to work for 5 years. A’s performance is
terminated if he dies. A dies after 6 months. A’s performance is
terminated.
d.
Unilateral K – Acceptance (creation of K) occurs at the same time performance is
completed, so it does not fall within the SoF
6.
K for sale of goods > $500 (UCC)
Requirement of Writing
1.
Full Expression – A K that falls under the SoF must be in writing and contain the essential
terms of the agreement
2.
Signature Requirement – Must be signed by the person against whom enforcement is
sought
a.
A signature can be anything that indicates that you agree to and are
authenticating the K
b.
Agent – A K signed by a party’s agent is enforceable against that party because
the attorney has the inherent authority to bind his client
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Contracts I Outline
Fall 2004
3.
C.
D.
Modification – Courts are split as to whether to require that a modification or renewal be
in writing – this leaves room for good advocacy, so you want to make the court want to
rule in your favor
UCC 2-201 (K for the Sale of Goods)
1.
Requirements for a K for the sale of goods for $500 or more:
a.
The writings must evidence a K for sale of goods
i.
K can be pieced together from various forms
b.
Must be “signed” (authenticated)
c.
Must specify a quantity
2.
Defenses to UCC 2-201
a.
Promissory estoppel
b.
Restitution
c.
Part performance – Goods are accepted or paid for and objection is not made
within a reasonable time
d.
Specially made goods – Goods are specially made and manufacturer can’t sell
them to someone else in the normal course of business
e.
In judicio admission
Defenses to the Statute of Frauds
1.
Main Purpose Doctrine
2.
Promissory estoppel
3.
Restitution/unjust enrichment
4.
Part performance
5.
In judicio admission
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Contracts I Outline
Fall 2004
V.
A.
Statute of Frauds
B.
Pre-existing Duty Rule
C.
D.
Policing the Bargain/Defenses to K
1.
Performance of a pre-existing duty is not consideration, therefore a promise to pay
someone more to do something they are already legally obligated to do is not
consideration, it is a nudum pactum.
2.
Pre-Existing Duty Rule vs. Rescission (when a modification is made to an existing K)
a.
General K Rule – both pre-existing duty and rescission exist
i.
Rescission enforced if unforeseen circumstances occur and the
modification is fair and reasonable
b.
Restatement – rejects the pre-existing duty rule
i.
If a promise modifies a duty under a pre-existing K, it is enforceable if it
is fair and equitable in light of anticipated circumstances
Incapacity
1.
Minority – person entering into K is under statutory age or majority
a.
Voidable – K with a minor is voidable at option of the minor
b.
Ratification – Occurs when a minor takes steps after they reach the age of
majority to indicate an intent to be bound by the K (often a factual determination)
c.
Rescission – A minor can void a K:
i.
At any time while he is still a minor
ii.
Within a reasonable time of reaching majority and before ratification
occurs
d.
Liability – A minor is not liable for restitution or damages if the goods are returned
(no matter what condition the goods are in when they are returned)
i.
Necessities – A minor is liable for reasonable value of any necessities
(although K is still voidable).
(a)
Standard – “Necessities” is an evolving standard based on
circumstances and what people around you have
2.
Mental Incompetence
a.
Voidable – K with someone who is mentally incompetent is voidable at the option
of the mentally incompetent person or the guardian
b.
Determining Mental Incompetency
i.
Cognitive (Old) Test –
(a)
The person is unable to understand the nature and
consequences of the transaction
(b)
Person may understand but can’t control their actions
(c)
Notice to other party not required
ii.
Modern Test
(a)
The person has an inability to act in a reasonable manner
because of the mental condition
(b)
The other party must know about the mental condition
c.
Liability – Mentally incompetent person who voids a K is still liable for damages
Duress
1.
Duress is pressure to do something under a wrongful threat of violence, unjustified
lawsuit or economic consequences
a.
K entered into under duress is unenforceable
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Contracts I Outline
Fall 2004
2.
E.
F.
G.
H.
Economic Duress
a.
Elements
i.
Threat to withhold necessary or needful (under the K) goods
ii.
Inability to obtain goods elsewhere (must look to reasonable sources)
iii.
Ordinary remedy for breach of K would be inadequate
b.
Wrongfulness superimposed over duress defense
Nondisclosure
1.
Duty to Disclose – A party has no obligation to disclose unless there is:
a.
False representation
b.
Partial disclosure of fact
c.
Prevention of buyer from finding the facts
d.
Special (fiduciary) relationship between the parties
e.
Other side knows the party is making a mistake as to a basic assumption of the K
f.
One party has special information not generally available to the other side
2.
Certain information that is descriptive in nature (i.e. address of a property for sale) is
considered a de minimus requirement – disclosure is required
Misrepresentation
1.
Misrepresentation alone is a defense for breach of K if:
a.
There is a false representation of a past or existing fact
i.
Statements of value and aesthetics are always opinions
ii.
Expert making a statement in area of expertise is more likely to be a fact
iii.
Statements that are more formal and/or more specific are more likely to
be facts
b.
The misrepresentation must be:
i.
Material
or
ii.
Fraudulent (willfully said to deceive)
c.
The party relied on the misrepresentation
i.
Reliance must be justifiable
ii.
Reliance is presumed if person making misrepresentation is in a fiduciary
relationship to the other party
2.
Misrepresentation of law is not a basis for a misrepresentation defense unless an
attorney misrepresents the law where he is licensed to practice
Mistake
1.
Mutual mistake – K can be rescinded if:
a.
Mistake goes to a basic assumption of the K
b.
Mistake has a material or substantial effect on agreed consideration
c.
Person alleging mistake can’t be blamed for the mistake
2.
Unilateral mistake – K can be rescinded if:
a.
Mistake goes to a basic assumption of the K
b.
The other side knew of the mistake
c.
Person alleging mistake can’t be blamed for the mistake
d.
It would be unconscionable to enforce the K
Unconscionability
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Contracts I Outline
Fall 2004
1.
2.
I.
J.
If a K is so unfair that it “shocks the conscience,” it is unenforceable.
a.
Requirements for unconscionability:
i.
K must be grossly unfair or one-sided
a.
Price Unconscionability – Unfairness can be found based on
grossly excessive price alone
ii.
Inequality of bargaining power between the parties exists
iii.
There is an absence of meaningful choice
b.
Exception: Absence of meaningful choice is presumed if there is a gross
inequality of bargaining power and someone is being exploited or taken
advantage of:
• Poor
• Uneducated
• Elderly
If a K is unconscionable, the court, based on the facts, circumstances and unfairness of
the K can:
a.
Refuse to enforce the K as a whole
b.
Enforce the K minus the unconscionable provision
c.
Reform the K to make it fair
K of Adhesion
1.
The idea of unfairness underlies any K of adhesion
a.
Requirements of a K of adhesion:
i.
Form K
ii.
Terms are grossly unfair
iii.
The K is “take it or leave it” and you have to take it
iv.
The unfair terms were not brought to your attention
v.
The unfair terms were not explained
2.
Boilerplate K
a.
Brings up problems with assent because most people don’t think of a ticket stub
or receipt as a K
b.
Requirements for enforcement of boilerplate:
i.
K has to be brought to your attention
ii.
It must be understood to be a K
iii.
Must have the opportunity to accept or reject
Public Policy
1.
Illegal K
a.
K to do an illegal act
b.
K that is legal but facilitates violation of a statute
i.
K will not be enforced if there is no special public interest to be served in
enforcing the K
c.
K to commit a tortious act or something that is gravely immoral
d.
K that results from an illegal act (procured by illegal means)
i.
Bribery of a public official
ii.
Collusive bidding on a government K
2.
Enforcement of Illegal K – If a K is illegal but one party gets a benefit conferred upon it
with the expectation of payment, then other factors are considered
a.
Factors
i.
Relative bargaining power of parties
ii.
Relative culpability
iii.
Knowledge of parties
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Contracts I Outline
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b.
If the party that conferred the benefit and is suing for breach has less bargaining
power or is less culpable, it will be allowed to recover
3.
Employment K/Non-competition Covenants
a.
Courts tend to disfavor non-competition covenants unless certain factors are met:
i.
Reasonable in terms of time and geographic distance – courts look at:
(a)
Whether it is greater than necessary to protect the employer
(b)
Whether it imposes undue hardship on the employee
(c)
Whether it is injurious to the public
ii.
Covenant is a consideration for employment
iii.
In writing
iv.
Necessary to protect the business interests of the employer
v.
Makes sense to have the clause
b.
Options of courts in dealing with unreasonable non-competition covenants
i.
All or Nothing Rule – Either the provision is enforced in its entirety or not
enforced in its entirety
ii.
Blue Pencil Rule – The offensive part of the provision is stricken and the
remaining part, if any, is enforced
iii.
Rule of Reasonableness – The agreement is modified by the court so
that it does not violate public policy
4.
Exculpatory Clauses
a.
Courts are predisposed to being prejudiced against exculpatory clauses unless
they are justifiable
b.
Types of exculpatory clauses:
i.
Complete exemption from liability
ii.
Limitation of damages (limits liability if you are liable)
iii.
Forum selection clause
iv.
Choice of law provision
v.
Time limit on suit
5.
Prenuptial Agreements
a.
Courts no longer presume that women are easily taken advantage of and need to
be protected by the court, so they tend to enforce prenuptial agreements.
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Contracts I Outline
Fall 2004
VI.
A.
B.
Remedies for Breach
Remedies at Law
1.
Restitution – Returns the innocent party the benefit conferred on the breaching party to
avoid unjust enrichment
a.
Value of benefit conferred
b.
Value of services rendered (quantum meruit)
i.
If benefit conferred is more than the services rendered, the injured party
cannot recover more than the value of services rendered
2.
Reliance – Puts the injured party back in the position they were in before the K was
entered into (status quo ante)
a.
Consider how much the injured party expended in reliance on the promise
3.
Expectancy – Puts the injured party in the position as if the K had been fully performed
4.
Nominal – Insignificant amount awarded when there is no loss (symbolic)
5.
Whatever is necessary to avoid injustice
Remedies at Equity
1.
Requirements for equitable relief:
a.
The injured party has no adequate remedy at law:
i.
Money won’t make the injured party whole
ii.
The subject of the K is unique
iii.
The K involves the sale of land – land is always considered unique
iv.
The product cannot be purchased elsewhere at a reasonable price
v.
The amount of money damages is indeterminable
b.
The K is fair and equitable
i.
Courts have the discretion to determine fairness retrospectively (when K
was entered into) or prospectively (when enforcement of K is sought)
2.
Specific performance – A remedy that compels the breaching party to perform the K
3.
Injunctive relief – A remedy that prevents someone from doing something
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