CONTRACTS REVIEW
Why enforce promises/What sort of promises should law enforce
A. K as promise
a. Ks typically moral obligations, when I say something I’m going to do it
B. Instrumental views
a. Enforce Ks that are socially beneficial
b. No illegal Ks, no Ks w/in marriages
C. Governing law
a. Common law is bedrock, gaps exist in statutes, treaties, etc
b. Restatement 2d covers common law
c. Article 2 of UCC applies to sales for goods
i. Goods are movable
d. CISG (understood similarly as under UCC)
i. Int’l sale of goods, 2 parties from diff countries
Formation
A. Is there intent to enter legal relations?
B. Intent to be bound?
a. K not enforced if formed through coercion, fraud, mistake, unconscionable, etc
b. No meeting of the minds, no K
c. Knowledge of miscommunication shared, or burden of add’l knowledge beared
C. Offer/Acceptance
a. Common Law generally (must be in writing)
i. Mirror image ruleofferor is master of offer and sets out terms of agreement
1. Recognize offer by form where ‘I accept’ can be acceptance
ii. Must be no need for further negotiations
iii. Distinct from willingness to enter bargain
iv. Offeror can revoke at any time before acceptance
v. Last shot ruleI make an offer for $2,000 on Tues, you need it on Monday
1. You sue for breach
2. The terms of the last offer/counteroffer will govern K
vi. Firm offeroffer plus promise to hold offer open for certain period of time
1. Naked promises not enforceable, consideration necessary to hold offer open
2. Weakening of rule (S 87) in Restatement, only requires purported
consideration
b. Unilaterals
i. Traditionally treated like any other K
ii. Restatement tried to get rid of unilateral K entirely by construing acceptance much
more broadly
1. If performance or offer of performance is present, good enough (S 45)
2. Only going to be able to recover fully if you complete performance (S 45)
a. Partial completion can recover in quantum meruit b/c of unjust
enrichment
c. UCC
i. Much more broadly construed under UCC (offer/acceptance are anything reasonably
construed as such)
ii. Diff/add’l terms not necessarily rejection and counteroffer
1. 2-204, 2-207
iii. 2-207(1)
1. Anything reasonably construed as acceptance will be treated as such even
though it states diff/add’l terms, unless it in essence states that it’s a
counteroffer (limits acceptance to terms)
iv. 2-207(2)merchants only
1. Add’l terms to be construed as proposals for additions
v. 2-307(3)
1. Look at gap fillers, etc
2.
Whatever terms common to writing and which ones we can apply under
UCC
vi. More liberal on firm offers – firm offer under 2-205 by a merchant in signed writing
enforceable w/out consideration for no longer than 3 months
d. CISG
i. All article 19
Consideration and Promissory Estoppel
A. Three theories of consideration
a. Peppercorn theoryif you and I agree, I can sell you $1 for a peppercorn? (S 79 restatement)
i. Mutuality not required for a binding K (some exceptions)
b. Detriment/Benefit theory (Hamer v Sidway)requirement that each side receive some benefit
or suffer some benefit
c. R (S 71(1))things exchanged must be bargained for
i. Ex: Two things that happened simulataneously
B. Functions of consideration
a. Evidentiary functionwe know they bound wills b/c they gave up something they value
b. Cautionary functionhas to give person moment to pause
c. Chatteling functionhelps identify the transaction as one that places parties into legal
relationship
C. Promissory Estoppel
a. Every so often get naked promise not enforceable (Kirksey v Kirksey)
b. Now courts will enforce naked promise if its been relied on (Red Owl)
c. R. 90promise, that the promissory would reasonably expect to induce reliance, produces
action, to the detriment of a promise there can be recovery
i. Recovery will be limited
ii. Only enforceable in the interest of justice – interest being protected is the reliance
interest rather than the expectation interest
iii. Entitled to a recovery of whatever losses you suffered in reliance to the promise
iv. As good as a position as good as you were had promise never been made
D. Promissory Restitution/Moral Consideration
a. Moral obligation to pay that coupled w/subsequent promise to pay that
i. Subsequent promise (naked, partially naked)
b. Moral consideration is no consideration (old rulemoral consideration)
c. R. 86new rule, moral obligations are sufficient consideration to support subsequent promise
where promisor has received material benefit
Quasi K/Restitution (ordinary restitution)
A. Basis for recovery outside of traditional K law (not based on offer, acceptance, consideration)
B. Law more or less implies K in sense of justice and as result of unjust enrichment
a. Arises mostly when court believes parties would have K’d if possible
b. Ex: person in car wreck treated when unconscious, quasi-K obligation to pay for treatment
C. Benefit must have been conveyed, benefit must have be type that would not have been done for free,
and must been done over express wishes that benefit not been done
a. Limited to fair market value typically
Interpretation
A. Incomplete K (what to do)
a. Common law much more reluctant to apply terms for fear of paternalism
b. Courts can apply term if highly plausible that both parties had term in mind at time of the
agreement
c. Industry customs can be source of implied terms (must be universal and reasonable)
i. Reduces transaction costs (sometimes better to deal in trade usage, fill in terms, etc)
d. Rules of construction
i. Ambiguous Ks interpreted against drafter
ii. If something is left off list, it is assumed that omission is intentional
iii. K will not be interpreted to render them commercially unreasonable
iv. K will not be interpreted as to render one or more provisions a nullity
v. Specific provisions are read as exceptions to general provisions
e.
UCC
i. Missing price term is no bar to K
ii. UCC willing to fill in gaps
1. Every UCC K carries implied good faith (1-203)
B. Agreement to agree
a. CL courts reluctant to enforce agreements to agree
i. Concerned about paternalism
ii. Concerned about parties getting free lawyering from courts
iii. Concerned about institutional competence
b. Common for parties to enter into letters of intent
i. Courts lately have enforce letters of intent if they see evidence that parties intended
to be legally bound (sometimes they state they are binding, sometimes they say they
aren’t, usually fall somewhere in between)
1. Look at totality of evidence to determine if intent to be bound
ii. In keeping w/good faith, parties always held by letters of intent b/c it says they
intend to negotiate
Statute of Frauds and Parole Evidence Rule
A. Statute of Frauds (Is there a K?)
a. Requirements/Scope (is it in w/in SoF)
i. Must be in writing
ii. Subjects (Marriage, Year or less, Land, Executorships, Goods worth over $500,
Suretyship)2-201
b. Is St of F satisfied
i. If at least 1 of writings is signed
ii. Clear enough that documents containing essential terms relate to same agreement
c. Exceptions (CL)
i. Part performance
1. If you partially perform, strong evidence that there was an agreement
ii. Promissory Estoppel (heightened here)
1. R. 1395 part test (evolved out of equity)
a. No other remedies available than enforcing
b. Reliance is def and substantial
c. Conduct corroborates promise
i. Unequivocally referable
d. Reliance is reasonable
e. Reliance is foreseeable by the promisor
d. Exceptions (UCC)
i. 2-201(2) Merchant objection
1. If there is a written confirmation of an oral agreement sent to the merchant
and the merchant doesn’t reject w/in 10 days, not need to be signed
ii. 2-201(3) Specially manufactured goods
1. Why manufacture unless we have an agreement, no need for writing
2. Party admits agreement
3. Goods have been received and accepted/payment has been made and
accepted
B. Parol Evidence Ruleparol/oral evidence of an agreement may not vary/supplement written
agreement that is a complete integration of the parties on the subject matter
a. Williston v Corbin
i. Four corners of document
1. If it seems to be integrated, then no parol evidence in to vary/supplement
terms of agreement even if it purports to deal w/integration
a. May have integration clause
b. Could be long and complex
c. Exception to subject matters that would be collateral to agreement
i. Ex: Mitchell icehouse agreement
ii. Masterson v Sinefocus on capturing intent of parties
b.
c.
CL exceptions
i. Always permitted to introduce evidence of fraud
ii. Always permitted to introduce evidence to ambiguity/interpretation
iii. ONLY APPLIES TO PRIOR or CONTEMPORARY AGREEMENTS, NOT
SUBSEQUENT
UCC exceptions
i. Permits evidence of course of dealing, course of performance, and trade usage to aid
in interpretation
ii. UCC 1-205, 2-208
iii. If you have express lang in a K, that should govern
1. But a court should always try to reconcile (i) w/express lang.
iv. Trade usage is binding if court observes regularity
1. Knowledge of trade usage irrelevant, still binding