Contracts Outline Partial informative/partial attack I. Basic Principles of Contract Law A. Simple Voluntariness Model i.

. Definition: Cannot be forced into a contractual relationship against your will; contractual relationships arise from parties free will ii. Implications: Must give voluntary assent to enter into K; no general duty to administer aid iii. OJO: When is SVM superceded? a. In a breach doctor takes the money and runs away b. Dominion cases when you test drive someones car and take it away c. Quasicontract (contract implied by law) you let a painter wrongly paint your house instead of your neighbors house d. Promissory estoppel I promise my niece $100 if she doesnt drink until shes 25 and I dont pay upon successful fulfillment of her promise e. Poughkeepsie Buying Service: Common law principles and statutory regulations enacted pursuant to the police power for public good f. Undisclosed principal: Sometimes, contracts can be made in spite of the fact that a party has an intention to make one (Watteau) B. Default Rules (abbreviated as dr in the outline) i. Definition: The rule that the law imposes unless parties agree otherwise ii. Implications: A. Coase Theorem: People will contract around default rules as long as its fairly inexpensive to do so C. Types of contracts i. Express oral or written enforceable agreement in which two people enter ii. Implied-in-fact: a court will assume a K when there is no other way to account for the parties activities; legal relationship thats not expressed a. E.g. Plumber comes to your house and renders services iii. Implied-in-law: a court treats the parties as if they have a K; used for other purposes such as unjust enrichment or duty a. Policy reasoning: It gets the incentives right! b. Remedy: Quantum meruit (what would a reasonable person pay for this good/service) (painting hypo) D. When are valid Ks not enforceable? (Another section in the outline focuses on this, too) i. Ks between family members are generally not enforceable (Balfour) a. OJO: If contract is negotiated prior to marriage (prenups) or if a party gives something up in reliance of a promise (Possaick v. Layton) ii. Contracts made in jest if the other party objectively understood that the offeror was joking, then contract is void a. Must give objective signals did the second party give objective signs that the second party was joking

b. Key question: What did the parties think, as observed by an outside observer? E. Miscellaneous A. Principal-agent relationship i. Apparent authority X actually is an agent of a principal and thirdparty reasonably believes that X (the agent) has the authority to bind the principal a. This is even the case if the agent acts fraudulently b. Cannot rescind the K c. OJO: But this doesnt mean that the agent can bind the principal to an illegal contract (say a contract to murder) d. What if the K doesnt result from the agency? i. Principal is still bound (see hypo on Page 6 of notes) ii. Policy reasons for enforcing undisclosed principal rule a. Transaction costs we interact with undisclosed principals a lot in our lives e.g. grocery stores B. Output and requirements K i. Output K you agree to buy as much as your supplier produces ii. Requirements K you agree to supply as much service as the buyer needs (e.g. utility companies) iii. All of these are illusory promises, but once you placed an order, the K became enforceable iv. Use the good faith test: Is the transaction made in good faith v. Is there an abrupt change in quantity? a. No quantity unreasonably disproportionate to any stated estimate or comparable prior output/requirement C. Previous dealings between the parties count a lot! i. If the offeree said no beforehand, you cant deliver a good/service to him and expect him to pay for it (no mutual assent see Boston Ice Co.) ii. Corollary: Silence is not a means for acceptance iii. How do I address this in an issue spotter/hypo: i. Was there an offer? a. Did offeror ask offerree, and did offeree answer yes? b. If yes offer b. If no no offer UNLESS previous dealings indicate that silence was a means of acceptance for a party D. You pay for the value of services, not necessarily the result (sterilization in Shaheen) E. Holmes Three Propositions i. Obligation of promisor to perform/pay damages (dual perf. Hypo) ii. Ks are a device which has the purpose of allocating risk iii. Parties should bargain over contingencies F. Why do people enter into agreements? (Kaplow and Shapelle) i. Differences in valuation ii. Advantages in production

iii. Complementarities iv. Lending/borrowing iv. Allocating risk v. Differing expectations vi. Underlying assumption: Ill be better off G. Why should the state enforce agreements? i. Significant costs: a Reputation b. Simultaneous exchange c. Hostage given/taken liquidated damages or collateral H. UCC i. Applies to sale of goods, NOT real estate or services ii. No consequential damages for seller!!!! I. Types of contracts i. Bilateral: Promise for promise a. Exchange of promises creates a binding agreement ii. Unilateral: Promise for performance (act) a. Offeree performs, which binds the offeror b. Legal consequences to the offeror, not the offeree, and legal consequences only arise when performance is delivered c. Promise of performance is NOT the same as actual performance d. Restatement and Corbin: As soon as information is given by offeror to offeree, power of acceptance is terminated; offeror is not obligated to pay several times over b/c the information from a subsequent person would be of no value e. What if there was an offer for a reward for a dog, you found the dog, but you didnt know of the offer? a. Cannot accept an offer youve never heard of b. No binding K (mutual assent) by accident iii. Option K a. Offeror cannot revoke b. When offeror invites an offeree to accept by rendering performance, option K is created when offeree tenders or begins the invited performance or tenders a beginning of it c. Modern approach applied to unilateral K iii. Must revoke before acceptance!!!!!! II. Contracts Implied-in-law A. Beneficial Intervention (Sommers) i. Three requirements: a. Obligation must be of such a nature that actual and prompt performance thereof is of grave public concern

b. The person upon whom the obligation rests must have failed or refused with knowledge of the facts to perform the obligation or cannot be reasonably expected to perform it c. The person who intervenes must, under the circumstances, be not an intermeddler but a proper person to perform the duty B. Unjust enrichment (Continental) C. No meeting of the minds, but still a K i. Quantum meruit: fair market value D. OJO Usually overrules SOF cases E. OJO Illusory promises do not get quasicontracts III. Prerequisites for a contract A. Was the K entered into by the will of the parties? B. Was there a meeting of the minds? (mutual assent to same proposition) i. When theres no meeting of the minds, the courts will imply a K (quantum meruit cases) BUT no express K ii. Meeting of the minds enforceable K C. Are the terms indefinite, vague, unclear, or a prediction? i. Yes (Davis) no K, instead an illusory promise, which is unenf. ii. Types of illusory promises a. Promise to pay good wages b. Promise to convey 100 acres of land without specifying what type of land c. Promise to divide profits without specifying what type of profits d. I predict well have a deal iii. No you may still have a K D. Was it a statement of future intention? i. Yes No K (acc. Corbin) ii. No you may have a K E. Was it a K between the families? (Hertzog) i. Were there previous dealings as such between family members that required payment? a. Yes may be a K b. No no K (not even a K implied-in-fact) F. Theory and literature i. Blackstone: a K is not a promise to do a thing, but a particular thing ii. Epstein: Repeat players in a business know the business better than courts do, so courts should look at what practices have evolved to protect ideas and adopt them iii. Ayres: Have I signaled to you that I mean this promise to you how promises are generally made in this context? (How do X traditionally make promises, and are these promises legally binding?) IV. The Offer A. What is an offer: i. Something that the offeree can do

ii. No action by offeror B. Master of the bargain theory i. Offeror may limit the means of acceptance, and no other means of acceptance other than those specified are available a. Acceptance depends on satisfying the master of the bargain theory b. Acceptance by performance must deliver at least a part of what the offer requests be performed or tendered ii. If there are any stipulations on acceptance, the offeror MUST include them in the offer (Lefkowitz) a. Read hypos on Page 39 C. Revocation offeror may revoke at any time before acceptance is effective; effective upon receipt i. Was acceptance effective? a. Yes no revocation b. No revocation still possible c. Acceptance is effective per the mailbox rule or tender of perf. ii. Effective upon receipt OR when dispatched in the original method as the offer was dispatched D. Rejection terminates power of acceptance i. Rejection: a manifestation of an intention not to accept an offer E. Offer expires terminates power of acceptance F. Acceptance effective upon dispatch G. Counteroffer operates as a rejection; terminates power of acceptance i. An offer made by an offeree to the offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer H. What is NOT an offer i. Is it an ad? a. Does it contain a specific offer with a specific procedure for acceptance i. Yes (Lefkowitz) offer ii. No no offer yet! ii. Communication: Was it actually made to the other person a. Yes offer b. No i. Made through an agent Offer ii. Not made through an agent no offer iii. Was it written? (Ks dont have to be written) a. Yes very likely an offer b. No look for other indicia iv. Was it a solicitation of offers or an offer? a. Solicitation No offer b. Offer May be an offer; analyze more carefully v. Can it be accepted by more than one person? a. Yes Not an offer b. No May be an offer; analyze more carefully

vi. Was there an implied or explicit quantity term? a. Yes Offer b. No Not likely to be an offer (Moulton) I. Firm offer an offer thats irrevocable i. An offer by a merchant to buy/sell goods in signed writing by which its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated, for a reasonable time (not exceeding three months); must be separately signed by the offeror J. Ancillary agreement I promise to hold this offer open until X i. Separate promise had to be supported by its own consideration K. Tender the attempt to hand over money L. Where does the risk lie in the offer? a. On the offeror. b. On the offeree when offeree makes counteroffer and becomes offeror V. Acceptance A. What terminates power of acceptance? i. Rejection ii. counteroffer iii. Lapse of time iv. Revocation made BEFORE acceptance v. Death of either party vi. Incapacity of either party vii. Nonoccurrence of any condition of acceptance of the offer B. Effective upon i) dispatch or ii) part performance C. Creates a legally binding relationship; cannot back out D. General rule for grumbling acceptance: a. We brush out commentary unless the commentary adds conditions E. Dominion a. Definition: When an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with expectations of compensation b. Operates as acceptance F. Notification is NOT a condition for acceptance G. Acceptance through silence i. Dominion ii. Offeror gives offerree reason to understand that silence = acceptance and offerree in remaining silent intends to accept the offer iii. Previous dealings a. Only notify me if you decide not to accept H. How must one accept? i. In any reasonable manner & in the way that the offer is made I. Is there an acceptance? i. Are there additional terms in the offerees response a. No yes its an acceptance

b. Yes i. Does the acceptance depend upon assent to the changed/added terms? a. Yes Counteroffer b. No Acceptance! ii. What if B asks Would you consider taking $1,500 instead? a. This is a counterinquiry iii. What is theres a typo in the acceptance? a. Counteroffer (Braunstein) iv. Is the acceptance through another means than whats specified through the offer? a. Yes counteroffer i. BUT offeror can accept the counteroffer v. Additional terms and both parties are merchants (see battle of forms) a. Becomes part of the K unless i. Offer expressly limits acceptance to offer terms ii. Material alteration iii. Objection has already been given/given within a reasonable time VI. Consideration A. Bargained-for benefit to the promisor or detriment to the promisee B. Needed for enforcement C. What doesnt constitute consideration? i. Preexisting Duty Rule: You cannot adjust a preexisting deal without additional consideration a. Yes Promise to pay more is nundum pactum b. No May have cons. D. What is consideration for? i. Evidence to be bound can be nominal; covenant ii. Quid pro quo actual substance of exchange a. Under this theory, court may say that consideration is inadequate E. Consideration theory i. Fuller: Consideration serves three functions: a. Evidentiary evidence to be bound b. Cautionary signals legal consequences for even the uninformed c. Channeling larger project of law F. Is notice required? i. No! G. Moral consideration a desire to discharge a moral obligation is sufficient consideration to bind D in a promise to pay VII. Promissory estoppel A. Invented by Williston B. Definition i. Promise which

ii. The promisor should reasonably expect iii. To induce action/forbearance of definite and substantial character on part of promisee or third party and iv. Which does induce such action/forbearance C. Reliance determines harm, but expectancy determines damages D. Theory i. Gilmore: You should compensate for reliance loss; put people in position had promise never occurred ii. Goetz/ Scott: Courts do not take into account changes in consumption patterns; changing consumption patterns does not constitute reasonable reliance E. When is reliance reasonable? i. Stranger? a. Yes Not reasonable b. No May be reasonable ii. Sarcastic promise? a. Yes Not enforceable b. No May be enforceable III. Damages A. Duty to mitigate damages: (Sommers and Shaheen) i. Did the breached promisee keep the cost of damages and the cost of avoiding damages low? ii. In general: liability will be assigned to the cheapest cost provided iii. Hypo: If I assign you to build a road and say I dont want it after 30 weeks, you have the right to sue me for cost of work so far (b/c completing the road will almost always be more expensive) B. Literature and theory i. Three types of remedies according to Langdell: a. Damages b. Restitution (return something to someone else) c. SP ii. Theory of efficient breach may the goods find their way to the highest valuing user a. Brooks: A should share/transfer gain of breach to B iii. Lumley Doctrine The court cannot force one to fulfill a personal services agreement, but can force one NOT to do things contrary to the personal services agreement iv. Literature on specific performance and Lumley Doctrine a. Kronman: personal services K is not subject to SP because of the rights of autonomous individuals b. Schwartz: SP is difficult b/c you cannot monitor the quality of performance c. Posner: Hostility problem must be part of the rule (??) v. Literature on unique goods (SP)

a. Schwartz: Although every good has a substitute, how can the court decide what the substitute is? i. Damages always undercompensate; we should always award SP vi. K market damages a. Eisenberg: K damages are set at perfect compensation vii. Reliance & expectancy a. Fuller and Purdue: i. Reliance should be given in cases of moral wrong because of reliance, I suffered a harm ii. Reliance relied upon a promise to your detriment b. Kaplan: Should offer expectancy damages (cost of promised hand actual hand after surgery) viii. Perfect tender rule/substantial performance a. Danzig: Cardozo was right in giving diminution of value b. Markowitz: Cardozo failed to consider two facts i. Specifications are requirements contemplated by parties ii. Architects are repeat, neutral players in transactions c. Schwartz: SP is the right remedy; Reading pipe has an idiosyncratic value C. Calculating damages: (read entire section) i. Is there a reasonable inference / reliable prediction of damages? a. Yes Proceed b. No Courts dont award damages (Freund) ii. What is the general Restatement formula for damages? a. (Not nec. relevant, but loss in value of other partys perf + incidental or consequential damages loss avoided) iii. Was it a good that can be resold on the market? a. Yes formula for contract market damages i. Breach by the seller: Market price contract price + incidental expenses saved in consequence of breach a. Market price: At time performance shouldve been rendered b. OJO: No consequential damages ii. Breach by buyer: Contract price Market price + incidental + consequential damages expenses saved in consequence of breach a. Market price: When buyer learns of breach!!! b. OJO: Under UCC, must cover to receive consequential damages b. No no K market damages iv. Is there a quantifiable cost of earning the expectancy? a. Yes add it to the K price! b. Is the cost to earn the expectancy still there in the substitute trans? i. Yes add it to the market price ii. No leave market price unchanged c. No, no cost of earning expectancy at all in this transaction dont touch anything v. Are there consequential damages?

a. Services and goods: Did the K damages arise naturally from the breach or in contemplation of the parties at the time of the K? i. Yes consequential damages + K market damages above ii. No no consequential damages b. Sale of Goods/UCC? Reason to know test: Did promisors have a reason to know of such damages when entering into a K? iii. Yes consequential damages + K market damages iv. No no consequential damages c. Are both parties firms? i. Yes both parties get lost profits as CD; precision not required (reasonable estimate is OK) ii. No make an argument either way, but usually CD not given d. Policy reason for consequential damages its up to those who have special needs to speak up v. Service contracts: Was the perfect tender rule breached? a. Perfect tender rule: You must perfectly tender the promise you have promised or youve breached b. Was there substantial performance and the performance is yet unfinished? a. Yes, both satisfied i. If cost of completion not disproportionate to diminution of value cost of completion ii. If cost of completion disproportionate to (>) diminution of value diminution of value b. No, both not satisfied Substantial performance doctrine doesnt apply v. Is specific performance merited? a. Is there a breach? If so, proceed. If not, analysis ends here. b. It is if the answer to any of these is yes i. Is it land? (Land has idiosyncratic value) ii. Is it a unique good (no substitutes)? iii. Is there no adequate remedy at law? a. You need something else other than damages iv. Are money damages incalculable? c. It is NOT if the answer to any of these is no i. Does the party seeking SP have clean hands? a. Clean Hands Doctrine If one has behaved in a way thats seen as undignified and immoral, not necessarily illegal, he/she cannot seek the relief found in courts of equity b. OJO: Clean hands doctrine doesnt preclude you from getting money damages c. OJO: No duty to disclose another partys mistake ii. Personal services (see Lumley Doctrine) d. Defenses: i. Laches ii. Clean Hands Doctrine iii. Frustration of purpose

iv. Damages would make you whole v. Covenant is unreasonable vi. Is there a liquidated damages clause? a. Yes Is it reasonable in light of the anticipated / actual harm caused by the breach? b. No Analysis ends here on liq. Damages vi. Other rules a. Did the breached promisee mitigate damages? i. Yes analysis ends here ii. No what would the least amount of damages be? b. Can the court limit damages for reasons of justice? (i.e. claiming damages when boat is sold) D. Expectancy and reliance damages i. Expectancy damages a. Put promisee into a position as if the K was performed ii. Reliance damages a. Put promisee into a position as if K were never performed IV. Negotiations A. Last Shot Doctrine: When one of the parties at the end of the transaction had the option of not going through with the transaction, the last document that changed hands before that is the governing document i. Form before payment governs B. 2-207 Knockout rule i. When both parties are fimrs and they have conflicting provisions, the provisions knock each other out C. Common law rule on not reading: Not reading is NOT a defense unless theres a good reason that you couldnt understand K terms i. Illiteracy or different language D. Battle of forms i. Firms: Last shot/knockout rule V. Ways to get out of a contract (the discussion in I is continued here) A. Is the K between family members? (Balfour) i. OJO: If contract is negotiated prior to marriage (prenups) or if a party gives something up in reliance of a promise (Possaick v. Layton) B. Is the K made in jest? if the other party objectively understood that the offeror was joking, then contract is void i. Must give objective signals did the second party give objective signs that the second party was joking? a. Yes No K b. No objective signs (just subjective) There was a binding K

ii. Key question: What did the parties think, as observed by an outside observer? iii. Was the other party a minor AND did the other party offer valuable services? a. Yes likely enforced b. No not enforced C. Is the K void? Not enforceable by either party i. Illegality D. Is the K voidable? One party has the power to make the K unenforceable by insistence i. Minors ii. Incapacity i.e. if the party has a legally appointed guardian iii. Intoxication iv. OJO: If I enter into a K with a minor, I cant get out of it through voidability E. Was it impossible to carry on the K, or was impossibility reasonably foreseeable? (School Trustees of Trenton) i. Hardline approach: If you want to escape an agreement, provide contingencies in the K ii. Todays approach: You may escape if its reasonably foreseeable F. Is it a covenant not to compete? **Read all three questions** i. Is it reasonable? Criteria follow.. a. Is the subject matter too broad? b. Is it too long? (i.e. 10 years in tech) c. Is the geographic scope unreasonable? ii. What type of jurisdiction do you live in? c. Is it a nonenforcement state/California? i. If one part of the agreement is unenforceable, the entire covenant is unenforceable d. Is it a blue pencil state? i. The court will enforce it insofar the court thinks its reasonable iv. Is there consideration provided? a. We will pay you $X every year you dont compete for Y years G. Statute of Frauds i. May not be used as a vehicle for fraud ii. Signed by party against whom its enforced iii. Within Statute covered by SOF (must be in writing) iv. Illegality v. unenf. v. Conditions a. Promises in consideration of marriage b. Promises to be performed more than a year from the date of agreement i. a K that contemplates performance > one year is outside the SOF as long as its terminable in less than one year c. Promise to transfer land, interest in land

d. Promise by an executor of an estate to cover costs from their own funds e. Goods > $500 f. Suretyship promise to pay someones debt a. Must be a debt and debt must occur shortly after b. No guaranty of a guaranty vi. Slightest ack of SOF will enforce the agreement vii. If a party says, Yes we had an agreement, it cannot plead the SOF viii. SOF cannot be pleaded for agreements that dont fall within SOF a. Agent/principal relat. example ix. What if terms of an agreement thats been made acc SOF are changed? a. As long as the underlying agreement of the sale of real estate is within writing, parties may vary the terms as long as the new terms dont constitute a new contract x. Complete Performance doctrine when one party has fully performed, the other party cannot raise SOF in defense xi. Main Purpose Doctrine: If its incidental to purpose of K, no SOF apply H. Gifts (Donative promises) i. Gift within the family a. Gift with conditions gratuitous promise b. Gift induces actions (give up that which you had the legal right to do) + promisor intended enf. OR promisee relied upon the promise to his detriment enforceable ii. OJO Donations to charity a. Theory: i. Eisenberg: Donors like to be able to back out, so no rule needed ii. Posner: Low end donations more likely to be withdrawn than high end donations b. Was there reliance of a definite and substantial character? i. Yes binding ii. No not binding I. Duress i. Threat made by the other party or partys agent ii. Threat is improper iii. Promise has to be induced by the threat iv. Action has to be a reasonable response to the threat J. Unconscionability i. No definition substantively unjust/unfair ii. Prevent oppression and unfair surprise iii. Theory a. Ayres: Transitional doctrine a world away from private lawmaking to a world of regulation iv. Williams v. Walker-Thomas Furniture a. Absence of meaningful choice on part of one party (lack of bargaining power) + terms unreasonably favorable to one party

v. Procedural Uncons: Absence of meaningful choice vi. Substantive Uncons: Contract terms unreasonably favorable to one party K. Law of Mistake i. Mutual mistake: Both parties made the same error a. No mutual assent, meeting of the minds rescission ii. Unilateral mistake: One party is aware of something the other is not a. Can have two unilateral mistakes! iii. Theory a. Holmes: Even the most remote risks are distributed in the K b. Who should bear the risk? i. One who can most cheaply avoid it; more easily take insurance L. Impossibility i. Objective agreement rescinded ii. Subjective pay damages VI. Theory (not damages and K) A. Contracts of adhesion i. Behavioral economists: Only terms that should be binding are what most buyers can pay attention to ii. Rationalists: Why do people not read? a. Irrationality want good so much that they dont read b. Rational ignorance all firms offer same g/s, someone must have discovered something bad