#17113 - Contracts Outline - Contract Law

Main questions

Contract formed?

Terms in Contract?

Meaning of Terms?

Rescind contract?

Breach/Substantial Performance?

Excuse performance?

Remedies?

WHICH PROMISES GET ENFORCED

Promise (1, 2, 4)

Consideration (71)

Adequacy (17, 79)

Promissory Estoppel Substitute for Consideration (90)

CONTRACT FORMATION

Manifestation of Assent (18, 19)

Offer (24, 32/62, 45)

Acceptance (50, 54, 56) (from syllabus: 25, 30, 40, 42, 45, 50 to 56, 62, 69)

Counteroffer (36, 39)

Battle of the Forms (2-207)

Assent in a Digital Age (Meyers/Nguyen)

Drennan Rule - Precontractual liability (87)

Lavel Test - Precontractual liability

Promissory Estoppel/Hoffman - Precontractual Liability (90)

Indefiniteness (33, 2-305)

Outputs/Requirements/Exclusive Dealing contract (2-306)

POLICING THE BARGAIN

Modification (73, 89, 2-209)

Duress (174, 175, 176)

Fraud (159-164)

Unconscionability (208, 2-302)

TERMS OF CONTRACT

Parol Evidence Rule (209-216, 2-202)

Interpretation (20, 2-202)

PERFORMANCE OF CONTRACT

Substantial Performance (241)

EXCUSES FOR NONPERFORMANCE

Mistake (151-154)

Impracticability/Frustration (261, 265, 2-615)

REMEDIES Specific Performance, Expectation Damages (limited), Liquidated Damages

Rescind contract

1. Mistake (voidable)

2. Fraud (voidable)

3. Duress (void if physical; voidable if economic/improper threat)

4. Unconscionability (voidable)

5. Ambiguity (R20) – void (Peerless)

6. Indefiniteness – contract unenforceable

Excuses Nonperformance

1. Impracticability

2. Frustration

BACKGROUND

t-Law: UCC v. Common Law

• UCC – exchange of tangible, movable goods

• Common Law – real estate, services etc.

• **if mix, look at if goods or services predominate

Goals of contract

• Promote value maximizing exchanges

• Promote autonomy (through contracting and planning for the future)

• Promote trust and reliance

t-Precontractual Liability – 3 ways to get it

1. Promissory Estoppel (Hoffman)

   • No offer, only a promise

   • Only if promisor acting in bad faith (ex. Goal post shifting)

   • (1) promise that promisor reasonably expects to induce reliance

   • (2) reliance

   • (3) justice requires enforcement (bargain context)

2. Drennan Rule - 87(2)

   • There is an offer but acceptance is delayed

     • Ex. Sub/gen contract scenario (Pavel) – construction sub bids are irrevocable for a reasonable amount of time if general relies

   • If offer reasonably expects to induce substantial reliance and offeree relies > an option contract is created in which offeror must hold offer open for reasonable time

3. Leval test - Binding oral negotiations?

   • Look at Ciaramella factors to determine which Leval category

     • (1) express reservation of intent not to be bound until signed writing

     • (2) type of contract normally written

     • (3) agreement of terms

     • (4) partial performance of contract

   • Leval categories

     • (1) Agree on all terms > binding preliminary agreement

     • (2) Agree on major terms but not others > binding preliminary commitment (obligation to continue negotiating in good faith)

     • (3) No agreement on major terms > no agreement

4. EXTRA: Quasi-contract

   • One type: quantum meruit – remedy for quasi contract

     • P gives D benefit > D accepts P’s benefit > D is unjustly enriched

UNIT 1 Enforceability of Promises

• Contract defined (RST-1)

  • Promise/set of promises the breach of which law gives remedy and performance of which the law recognizes as a duty

• Promise defined (RST-2)

  • Manifestation of intention to act or refrain from acting in a specified way, so made to justify promisee in understanding commitment has been made

• How promise may be made (RST-4)

  • May be stated in words either oral or written OR inferred wholly or partly from conduct

• Bargain defined (RST-17)

  • Bargain is required for formation of contract

  • includes (1) manifestation of mutual assent to the exchange and (2) consideration

t-CONSIDERATION

Required for an enforceable promise

• 1) Was there consideration? (RST-71) (y)

  • There was bargained for exchange

    • Bargained for if performance or return promise is sought by promisor and given by promisee > promises/consideration induced each other

      • Ex. Hamer – uncle promised 5k and Willie promised to refrain

    • Performance/return promise may be given to or by a third person

  • Mixture of gift and bargain = consideration (71 comment c)

• 2) Was consideration adequate?

  • Given consideration, court does not inquire into its adequacy

    • RST-79: No requirement of (1) benefit to promisor (2) detriment to promisee (3) equivalence in values exchanged (4) or mutuality of obligation

    • Ex. Batsakis (not require equivalence in values exchanges)

  • Especially when value of consideration not easily measurable – defer to appetite of parties and protect their subjective values

    • Ex. Wolford (naming of child after Lehman brings immeasurable pleasure)

  • POLICY for not inquiring into adequacy

    • Parties better able to subjectively value consideration

    • Want to encourage not deter formation of agreements

    • Incentivize investments – encourage high risk transactions (Batsakis, pay day loans)

    • Difficult from court to reverse-engineering transactions, so defer to the ex ante view

• 3) No consideration if

  • (1) gift promises/conditional gifts (mere condition attached to gift vs. offeror seeking an exchange)/ mere gratuity

    • Kirksey

  • (2) past consideration (Feinberg/Hayes)

  • (3) sham/nominal consideration (RST-79 comment d)

    • Disparity in value indicating that consideration was a mere formality or pretense – sham or nominal consideration

    • Ex. Exchange land of $1 - $1 is mere pretense

  • (4) consideration is something you don’t have legal right to do

    • Ex. Promise to kill someone in exchange for money

• Gross inadequacy of consideration that “shocks the conscience”> could indicate mistake, duress, or fraud to excuse (RST-79 comment e)

• Consider: business or intra-familial setting?

  • Business > likely to be consideration (Wolford – structured as contract)

  • Intra-familial > more likely no consideration

• POLICY: Functions of K

  • Evidentiary (provide existence of K)

  • Cautionary (prevents rash action)

  • Channeling (provide legal framework for expressing intent to be bound

  • Administrability (too many resources needed to enforce all promises)

  • Value maximizing (allow both parties to benefit by getting someone considered more valuable than what you’re giving up)

  • Preserve value of gift-giving

  • CONSIDERATION is a proxy for policies we want to further in enforcing contracts that are beneficial and value maximizing

t-PROMISSORY ESTOPPEL AS CONSIDERATION SUBSTITUTE (90)

Even if no consideration, can use PE to enforce the promise

3 elements (RST-90) – Promise is binding if

1. Promise made by promisor who reasonably expects to induce action or forbearance (reliance)

2. Inducement

3. Injustice can be avoided only by enforcing the promise (justice re quires enforcement)

   1. Based on context/nature, not external factors like age, gender, ability to work (Feinberg)

   2. ASK – was there a bargain preempted by the promise OR was there a bargaining context?

      1. If a gift promise displaces bargain that would have occurred > promise enforceable

      2. YES in Feinberg: her knowledge/seniority in company made it likely that she could have asked for pension in exchange for her continued service; company preempted bargain by what appears to be gift; they cold have bargained and created the same terms

      3. NO in Hayes: no ability to bargain for pension; already decided to retire so no reliance, unclear if promise reasonably induces; looks like a gift

POLICY for promissory estoppel

• Encourages reliance and value-maximizing behavior

• Like consideration, allows us to enforce promises we want to enforce

Unit 2: Formation of Contract

Requires manifestation of mutual assent, offer, and acceptance

t-MANIFESTATION OF MUTUAL ASSENT

• MMA requires that each party either makes a promise or begins/render performance (RST-18)

  • Comment c: law takes joker at his word if other party is deceived & had no reason to know of joke (burden on idiosyncratic party to clarify intention) (Lucy)

• MMA may be made by written/spoken words or act/failure to act – (RST-19)

  • Conduct is not MA UNLESS intends to engage in conduct + knows/has reason to know other party may infer for his conduct that he assents – (RST-19)

  • Cmt b: “reason to know” of fact – if has information from which person of ordinary intelligence would infer that the fact does/will exist

    • Reason to know does not need to be conscious

• OBJECTIVE TEST used to determine if there is manifestation of mutual assent

  • Agreement must be based on outward manifestations of intent, don’t need subjective meeting of the minds

  • Observable indications of assent

    • Language + communications

    • Overt behavior

    • Custom/usage in marketplace

    • Generally accepted meaning of language

    • Can use subjective thoughts if provide insight into assent (relevant but not decisive)

  • Ex. In Lucy – Z seemed serious bc asked wife to sign, corrected mistakes upon request, negotiated by extended period...