Intro to Contract Law

1. What is a contract? A. A promise that the law will enforce or at least recognize as legally important B. All contracts involve a promise C. Not all promises are contracts D. Promises under a contract must be enforceable under law i. Law can provide a remedy if not fulfilled ii. Some contracts are valid but will not be enforced 1. K to buy illegal goods 2. K involving illegal activities 2. Historical distinction between promise and contract i. Promise made "under seal" was binding ii. Same promise not under seal was a gratuitous promise iii. Over time, seal became arbitrary iv. New standard developed: Consideration 1. How did promise come about? 2. How was it made? 3. Contract Law A. K law historically part of tort law i. When parties engage in transactions, they expose themselves to vulnerability of possible loss B. K law developed from common law over centuries C. Stare decisis (precedent) applies to k law D. Allows people to sculpt their own situation i. Does not impose rules of behavior (cut whatever deal you want) 1. We enforce k as parties structure it 2. This makes default rules the only real conflict k law addresses ii. Unlike tort law 1. Examine behavior and decide if it conforms with expected behavior iii. Unlike criminal law 1. Sets rules of behavior that must be followed E. Sources of k law i. Restatement project 1. Scholarly enterprise that sifts through state laws and develops consistent approach for courts a. Courts avoid wading through many cases to find law b. Judges are not bound by restatement 2. Restatement is a reflection of the law, but is not the law ii. Uniform Sales Act 1. Legislature determined certain resolutions iii. Uniform Commercial Code 1. Legislatively dictated how certain k rules work 2. Statutes developed from common law, but rejected and changed some common law 3. Uniform between the states (generally), incl. LA 4. Encourages commerce through predictability of k law to protect parties iv. CISG- International sale of goods (not much use in this class) 5. Breach of Contract A. ONLY cause of action in contract law B. Strict liability i. Doesn't matter what state of mind or incompetency led to breach ii. Contract has not intent element (no intentional or unintentional breach distinguished) C. Court evaluates expectations

i. what a party would have reasonably expected under k terms ii. What a party would have reasonably expected to be responsible for under k terms D. Types of Breach i. Failure to perform promise/bargain at time agreed without justification ii. Repudiation of promise/bargain iii. Bad faith by hindering/preventing other party's performance or failing to cooperate

Contract Remedies
I. Basic Policies A. K duty based on condition that other party is not breaching k i. Material breach by 1 party = other party can suspend performance or cancel k and sue 1. Suspension or cancellation not dependent on court order ii. Non-material breach = no option to cancel, but entitled to damages B. Damages i. Usually monetary ii. Could be specific performance in some cases 1. Judicial order to perform or go to jail 2. K must be unique for specific performance to be granted, or money damages inadequate iii. Damages depend on court order C. Basic assumption of remedies i. Aggrieved should get net gains prevented by breach + any uncompensated losses resulting from the breach ii. Purpose: to put aggrieved in position he/she would have had without breach D. K remedies are not used for deterrence; punitive damages very rare E. Determining damages i. Plaintiff proves with reasonable certainty 1. Breach was substantial cause of loss and 2. Amount of loss caused by breach ii. Provable losses caused by breach 1. Those reasonably foreseeable to defendant at time of k iii. Plaintiff duty after breach 1. Make all reasonable efforts to avoid consequences of breach F. Parties can agree to expand/narrow available remedies i. Substitute arbitration for trial ii. Substitute mediation for trial G. Winner may recover i. Compensatory damages ii. Interest on $ withheld iii. Court costs iv. But not usually attorney's fees H. Court does not like to interfere with what relief a plaintiff seeks or a relief the plaintiff will be satisfied to get Types of Relief A. Expectancy/Expectation relief i. Damages for not meeting expectations of k (did not improve life in manner expected from contract) ii. Moves plaintiff to position he/she would have been in if expectations of k met iii. Usually applies to ks with consideration (not promissory estoppel or unjust enrichment) iv. Does not include restitution B. Restitution = relief i. Restores to plaintiff what defendant should not get to keep after breach ii. Ex: Sullivan pd dr. $, but dr. didn't perform as agreed.

II.

C.

D.

1. Dr. shouldn't get to keep money 2. Dr. has to give money back iii. Moves defendant back to the position he/she was in before k Reliance damages i. Plaintiff in a worse condition after k, reliance tries to put plaintiff back to where she was before k ii. Moves plaintiff to a position before k iii. Less generous than expectation iv. Doesn't take into account lost profits (unlike expectation) v. Includes restitution Specific performance i. Type of remedy ii. Orders party in breach to perform as k specified iii. Not commonly used/granted

Consideration
Restatement 71 Requirement of Exchange; Types of Exchange (p.189) Restatement 72 Exchange of Promise for Performance 1. What is Consideration? A. See above restatements B. Required for a valid k C. Conditions placed on gratuitous promises are not consideration D. Consideration does not ensure outcome of k will be what each party wanted E. Anything that happened in the past cannot be consideration for today's promise i. Today's promise cannot induce yesterday's performance ii. Bargain must be structured in "IfThen" F. There is consideration so long as there is an incentive driving promisor to make promise i. Motives for k can be "mixed" ii. But this is irrelevant- ct doesnt care what motive is, concerned with consideration 1. If ct finds the agreement tried to "dress up" a gratuitous promise into looking like consideration, most likely won't enforce a. This is a "pretense of a bargain" b. Ex: $1 for 1000 shares of IBM stock not "bargained for"- ridiculous to think someone would bargain for this disparity in value iii. See restatement below Restatement 81 Consideration as Motive or Inducing Cause (p.194) 2. Tests for Finding Consideration A. Benefit/detriment approach i. Was there a benefit to the promisor? ii. Was there a detriment to the promisee? 1. Foregoing a legal right falls into this test B. Bargaining theory i. Did the promisor's promise induce the promisee's performance? ii. Did the promisee's performance induce the promisor's promise? iii. This is a more nuanced test 3. When Consideration Requirement is Met A. Courts resist inquiring into adequacy of exchange i. Corollary of freedom of k 1. No requirement of equivalence in the values exchanges 2. Broad recognition of power of parties to determine their own obligations

ii.

3. Assumption that people determine their own benefits according to their own interests Limited protection from bad bargains 1. When court finds that exchange was not a legitimate bargain a. Ex: promisor unaware of a disparity and did not bargain for the inferior thing he received 2. Court examines quality of bargaining process a. Fraud on either side? b. Made under duress? c. Made by mistake? 3. Court can refuse to enforce a k where outcome "shocks conscience"

Restatement 73 Performance of a Legal Duty (p. 190) 4. Pre-existing duty rule A. See Restatement 73 above B. Allows for modification of existing contracts i. Court more tolerant of consideration shortcomings in modified k ii. but must find some consideration beyond original k terms C. Does not apply to third parties i. Ex: p.91 problem: subcontractor's added inducement 1. No contractual obligation between subcontractor and customer 2. Contracts between customer and contractor, contractor and subcontractor 3. Promise made by customer to subcontractor to pay more money for services binding because no pre-existing duty between them Restatement 89 Modification of Executory Contract (p.200) 5. Modification A. Services= (R 89) requires consideration i. A K may be modified if in good faith: 1. Both parties voluntarily agree 2. Modification is made before either performance is complete 3. Underlying causes of modification were unanticipated 4. Modification is fair and equitable B. Goods= (UCC 2-209) i. Modification of K for sale of goods requires no consideration to be binding, but must meet the test of good faith 1. Good Faith: the observance of reasonable commercial standards of fair dealing in the trade. It may also require objectively demonstrable reasons for the modification. 6. Agreed Settlement or Discharge A. Novation- "new" committed party i. Ex: poor farmer in debt to John Deere, rich uncle agrees to take over debt if John Deere releases nephew ii. This is consideration- new debtor with means to pay debt, not a cosigner after-the-fact iii. No formal writing required (can be oral) B. Accord and satisfaction i. You can modify a pre-existing legal duty is you genuinely (good faith) believe that a lower payment with a note attached will cover the remainder of performance. C. Requires good faith (genuine belief and reasonable belief) D. If settlement made by an entity with power and experience to know it is far below what is merited, not in good faith E. UCC 3-311 only applies to checks, not to settlements made for cash, trade, etc.

7. Mutuality of Obligation A. Enforceable k can have an expressed condition i. Explicitly state a party will not agree unless other party agrees to particular terms ii. No duty to perform unless stated condition occurs iii. If promisor cannot control stated condition and calls off k in a timely manner, courts usually protect privilege to withdraw without liability iv. Complicated if k or rule of law allows party withdraw after performance begins, for reasons within party's control B. Both parties promises must be binding i. There may be reasons a party can get off the hook legitimately 1. Legal reasons 2. Conditional clauses ii. K cannot be made so one party can walk away at any time 1. Bilateral agreement requires commitment from both parties a. If a party promises to sell, the other party must promise to buy i. Both are mutually bound by agreement ii. This is enforceable 2. Doesn't matter what parties have done in fulfillment of the k a. Only matters to ask what are they supposed to do b. What was their obligation? c. Were they both bound? iii. Standard for a person who has right to exercise his discretion in getting off the hook 1. Must be exercised honestly and in good faith 2. Usually must be reasonable a. Court can deem a person "satisfied" if he is unsatisfied when a reasonable person would be satisfied b. Matters of personal taste may not require "reasonable" standard iv. Requirements Contract 1. No fixed quantity must be purchased 2. Buyer only purchases what he needs 3. Seller takes risk that buyer may in good faith reduce requirements to zero 4. Deal must be exclusive dealing- buyer buying only from seller 5. Both parties must agree that k is a requirements k 6. K has mutuality of obligation despite indefinite quantity due to good faith requirement and commercial standards of fair dealing v. Output contract 1. No fixed quantity must be produced 2. Seller produces what he can in good faith 3. Buyer takes risk that seller may in good faith reduce production to zero 4. K has mutuality of obligation despite indefinite quantity due to good faith requirement and commercial standards of fair dealing UCC 2-306 Output, Requirements and Exclusive Dealings (p.44) F. Illusory and Alternative Promises i. Exclusive Control 1. If the Promisors promise is based on conditions that he exclusively controls, the promise is illusory and is not supported by consideration ii. Escape Clauses 1. An offer may contain an escape clause as long as the condition is not within the Offerors exclusive control iii. Cancellation Clauses

iv.

v.

1. A clause that allows cancellation at any time is not illusory if it has restrictions on how that cancellation is carried out (ie. Only stop performing after 60 days notice). Impossible Conditional Promise 1. A conditional promise that the promisor knows cannot be satisfied is not consideration Choice Between Alternative Performances 1. A promise that allows the promisor to choose between alternative performances is not consideration unless each alternative performance would have qualified as consideration alone.

Restatement 77 Illusory and Alternative Promises (p.193)

"Contracts" Without Consideration

Restatement 86 Promise for Benefit Received (p.197) I. Restitution for Unjust Enrichment A. Unjust enrichment a distinct category of obligation i. Plaintiff must have intended to charge for benefit ii. Plaintiff must NOT have imposed it on the recipient (officious intermeddler) B. Restitution is a basis for liability (potential cause of action) C. Designed to prevent unjust enrichment D. Every case has : benefit conferred/obtained outside consensual framework of ordinary bargain i. Must be enrichment ii. Enrichment must be unjust E. When defendant received a benefit it would be inequitable for him to retain without payment to giver, a k implied in law is recognized by court i. Court finds parties would have wanted to bargain but didn't have the opportunity ii. Contract in law substitutes for k parties would have made it they had opportunity iii. Receiver of benefit does not have to pay more than benefit was worth to him in good faith F. When restitution is the cause of action, damages are measures according to restitution Elements Determining Restitution Liability A. Did party A confer a measurable benefit to party B with expectation of compensation? B. If party B retained benefit after knowing it was conferred, did A give B chance to decline it before it was conferred? i. If yes and B didn't object, then maybe liability based on consent ii. If no, A cannot recover unless reasonable excuse 1. Ex: unconscious patient gets medical care but can't consent 2. Without reasonable excuse for conferring, A becomes an officious intermeddler or volunteer C. Gratuitous benefits do not qualify for restitution liability i. Do not require payment ii. Volunteers do not get to make a claim for payment later iii. Must show benefit was not a gift by: 1. Was the benefit giver a professional in giving service of particular benefit conferred a. Ex: unconscious patient treated by doctor = patient billable b. Unconscious person given first aid by good samaritan = volunteer service 2. Was there an opportunity to contract? a. If benefit giver turned down opportunity to k, law deems giver a volunteer or officious intermeddler (unjustly imposes benefit in order to gain)

II.

b.

If no opportunity to k, may have contract implied in law and be obligated to pay = quasi k; unjust enrichment

Restatement 90 Promise Reasonably Inducing Action or Forbearance (p.201) III. Promissory Estoppel A. Prevents defendant from claiming "no consideration" B. Person relied on a promise to his detriment C. Reliance must have been foreseeable D. RP standard of foreseeability E. The action taken in reliance on the promise must have been the foreseeably induced action F. Two kinds of reliance i. Affirmative reliance 1. Taking action in reliance on a promise ii. Reliance by refraining from doing something due to the promise G. If the promise induce's a 3rd party to act in reliance, still works under restatement 90 H. Restatement 90 (2) - charitable organizations i. Basically still have to have reliance even though language indicates you don't ii. This is because you have to show injustice would occur if promise not enforced I. "Injustice" in the restatement is a matter of law for the judge Revival of Barred Debt A. If indebtedness would be enforceable but for a statute of law, a promise to pay all or part of the contractual or quasi-contractual indebtedness is binding B. The promise can be: i. Acknowledgement: A voluntary acknowledgement of the indebtedness ii. Partial payment: ie. Here you go, I know I owe you =s you own the whole debt iii. No Statute of Limitations Defense A promise that the statute of limitations will not be used as a defense. C. Youth i. If you escape a contractual obligation because you used your minor super powers to void the obligation and later make a promise (or just admit) that you do have an obligation; you revived the barred debt. You suck D. Bankruptcy Debts i. May only be revived by expressed promise, not just an acknowledgement- usually in writing Moral Obligations A. Previous Unjust Enrichment Later Promise to Pay i. A promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice. 1. You had unjust enrichment before but didnt pay, later you promise to pay for it B. Limits: Sometimes it is Not Binding: i. Not binding to make a promise to pay for a gratuity ii. Compensation for unjust enrichment cannot exceed the value of the benefit conferred. 1. I can make a million dollar promise to repay you for saving my $1000 antennae, but you cant enforce the promise for more than the value of that antennae. Restatement 24 - Offer Defined An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. I. Offer A. Offeree is the master of the offer

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V.

Offer and Acceptance

B.

C.

D.

Can structure the deal 1. The terms a. If other party still has to perform certain acts, not an offer unless accepted in specified way b. Who can accept the offer 2. Method of acceptance a. Deadlines b. How to notify Doesn't matter who drafts the agreement i. whoever has the power to close the deal is the offeree ii. The other guy is then the offeror If an RP believes he has the power to close the deal with a simple affirmative response i. This is one way to determine if there was an offer ii. If an RP would not have thought this, then not an offer If the alleged offer seeks a promise in return and does not seek to induce performance i. Then it is an invitation to negotiate, not an offer

i.

Restatement 26 - Preliminary Negotiations E. Advertisements i. Ad must be sufficiently definite to be an offer 1. Quantity limitation 2. Specification of who qualifies for offer 3. Clear and explicit 4. Nothing left for negotiation F. Rewards i. Must specify the performance sought in return for the promise ii. Cannot seek a reciprocal promise, only performance stated act iii. Create a unilateral agreement 1. Only requiring performance of one party to accept offer and be binding iv. Offeree must have knowledge of the offer before performance v. Law assumes the offer was the inducement if offeree was aware of offer 1. Even if partially performed, if learns of offer during performance and then finishes performance, still an inducement to complete the performance G. Auctions i. Without reserve- auctioneer makes offer, bidder accepts by bidding. Highest bidder wins ii. With reserve - bidder makes offer by bidding, Offer tops offer until auctioneer accepts when gavel pounded. Item can be withdrawn from auction before acceptance iii. Bidder can retract offer in either type of auction before auctioneer closes the sale iv. After sale is complete, the winning bidder can't retract v. UCC 2-328 H. Offer Revocation i. An offerees power of acceptance is terminated when: 1. Direct Revocation: a. Offeree receives manifestation of intent from offeror not to enter into the proposed contract 2. Indirect Revocation a. Offeror takes definitive action inconsistent with an intention to enter into the proposed contract, AND b. Offeree acquires reliable information to that effect i. If the info is from a wrong second hand source it doesnt invalidate anything because it is wrong

ii. Offers made to the general public 1. can only be revoked by general notification equal to that given to the offer and then only if there is no better means of revocation reasonably available. I. Offer Lapse i. An offer will lapse after a reasonable time: 1. Conversation Rule- Lapses after conversation on that topic ends. 2. Conversation Rule version 2- Lapse after entire conversation ends 3. Objective Test a. Offeree should know how long offer is good for. b. Once offeree knows that object of offer cannot be accomplished, offer is revoked 4. Individual Rule- Time lapses once you know you are not the first person to accept this offer ii. Death of offeror 1. Offer expires when offeror expires a. No notification requirement of offer expiration 2. If accepted before offeror dies, then a k J. Option Contracts = Irrevocable offers (for services) i. An Offer that is held open through a separate offer and acceptance to keep it open ii. Option contracts must be held open through purported consideration. (ie. $50) but this consideration can be nominal and doesn't seem inpt if not paid (restmnt. 87) iii. An offer in an option contract if: 1. In writing and signed by offeror, and 2. Recites purported consideration and 3. Either a. Proposes a fair exchange within a reasonable time, or b. Is made irrevocable by statute. iv. An offer which the offeror should reasonably expect to induce substantial action or forbearance by the offeree before acceptance, and which DOES INDUCE, is binding as an option K to the extent necessary to prevent injustice 1. Similar to Promissory Estoppel (R90) v. Not in Writing If: 1. If there is actual consideration given, no writing is needed. vi. Restatement 37 Power of acceptance under an option K is not terminated by: 1. Rejection 2. Counteroffer 3. Revocation 4. Death or incapacity of offeror 5. Unless: a. The requirements are met to discharge the K, or b. The rejection/counteroffer/revocation is substantially relied on by the offeror vii. Only way out- If offeror relies on statement that the offeree told me to go ahead to sell it; then in order to prevent injustice we wont enforce the option viii. Time of Option begins running on receipt of the offer by the offeree, not upon acceptance ix. Offeree's vacillating during option period is ok unless offeror reasonably relies on rejection K. Firm Offers: UCC (2-205) - options k for goods i. An offer by a merchant (offeree doesnt have to be a merchant)to buy or sell goods 1. that says it will be held open, is not revocable for lack of consideration if 2. it is in writing and signed.(by both parties) ii. Like an option contract in that it remains alive even if offeror is dead iii. Time Restraints 1. It will be held open for the time stated, or if not stated, for a reasonable time. a. Firm offers will never be held open more than three months.

i. If says 4 months, it will be open for 3 months. ii. If I say 2 months, it will be open for 2 months b. If the writing is a form that is supplied by the offeree the terms providing that the offer will remain open must be signed separately Restatement 32 Invitation of Promise or Performance In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests of by rendering the performance, as the offeree chooses. Restatement 56 - Acceptance by promise; Necessity of Notification to Offeror II. Acceptance A. Unless unambiguously indicated by the offeror in terms or circumstances, an offer invites acceptance in ANY MANNER and by ANY MEDIUM reasonable under the circumstances B. Acceptance by promise i. person with power to close by saying "done" has power of acceptance ii. Must be reasonably diligent in attempt to notify other party of acceptance 1. If you are, then it isn't required that other party receive notification iii. If you are not reasonably diligent but other party receives notice, that's ok 1. Lucky SOB rule iv. If offer specifies method of acceptance, must accept in this way v. Mailbox rule1. acceptance is effective upon dispatch, even if it doesn't arrive a. If it is done in the manner specified in the offer or b. If acceptance is in a way invited by offer c. If you accept in a customary way, though not specified, still acceptance at dispatch 2. Acceptance is effective upon offeror's receipt of notification if: a. It is done in an uncustomary way or uninvited and it they dont receive it seasonably b. If you send acceptance in a way forbidden by offer, it is not acceptance but a counteroffer c. Option ks- only acceptance upon receipt of notification vi. Acceptance is not reasonable if it is something the person would have done anyway 1. Ex: if you blink in the next 15 seconds, that's not reasonable acceptance 2. Ex: if you keep doing the job you're already doing, that's not reasonable acceptance Restatement 54 - Acceptance by Performance; Necessity of Notification to Offeror C. Acceptance by performance i. Where an offeror invites an offeree to accept by rendering a performance (behavior), no notification is necessary to make such an acceptance effective unless the offeror requests such a notification 1. (1)(c) Could probably assume that it is implied that the notification of acceptance is not required and probably wouldnt have wanted notification because it was needless information ii. If an offeree who accepts by performance has reason to know that the offeror will not be able to promptly and certainly learn of the performance, either: 1. The offeree must exercise reasonable diligence to notify the offeror upon accepting, or 2. The offeror must otherwise seasonably learn of the Acceptance (you lucky SOB), or 3. The terms of the K must say no notice is necessary. iii. When Acceptance must be by Performance: 1. A strict Unilateral Contract can only be accepted by performance.

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IV.

iv. When Acceptance may be by Performance: 1. When a contract can be bilateral or unilateral a. Commencing performance operates as Acceptance and serves as a promise to complete performance. (R 51) 2. Learning of the offer in the middle of performance is good enough. a. Commencing Performance v. Mere Preparation to Begin: i. Performance means actually performing on the terms of the K- not just preparing to do so (although if substantial, detrimental reliance) v. Acceptance by Performance Locks the deal in place after work starts 1. Commencing performance creates an Option K that prevents the offeror from revoking the offer. But the offeror need not perform until offeree completes performance. D. Silence as Acceptance (R 69) i. When offeree otherwise accepts through his actions ii. When offeree 1. Takes the benefit of the offered services 2. With reasonable opportunity to reject them, and 3. They were offered with expectation of compensation iii. Previous Dealings: Where because of previous dealings of otherwise, it is reasonable to expect that offeree will notify offeror only if he does not intend to accept. iv. Price charged in Ks that are accepted by silence must be manifestly reasonable E. Exercise of Dominion as Acceptance (R 69) i. An offeree who does anything with the offered property that is inconsistent with the offerors ownership is bound by the terms of the K unless they are manifestly unreasonable. 1. However, the offeror still gets to decide whether to sell or not. F. Shipment of goods i. Orders=offers ii. Acceptance by promise of prompt shipping or actual shipping og conforming or nonconforming goods iii. If nonconforming goods, shipper must seasonably notify buyer that goods are an offer of accomodation Counteroffers A. Acceptance must mirror the offer. B. Basic contract theory is that making acceptance conditional upon other terms or modifications is not acceptance at all but a counter offer. i. upon counter offer the old offer is dead C. An inquiry into an offer isnt a counteroffer and the offer remains open D. IF a completely different offer is made (ie for diff goods) there is no counteroffer E. Terms that should be obvious are not modifications (ie payment in US dollars) UCC: 2-207 The Battle of the Forms Referee for Sales of Goods A. Goal: to keep merchants from getting out of ks that seem binding B. When will we apply it: i. When there are different or additional terms in the K in sale of goods C. Merchant is one who either: i. Deals in this particular type of good, or ii. Holds himself out as having extra knowledge or skill concerning the good. D. Between Merchants- in any transaction where both parties are chargeable with the knowledge or skill of merchants. i. A definite and seasonable acceptance or confirmation that contains different or additional terms: 1. Still acts as acceptance unless acceptance is made conditional on the different or additional terms (then a counteroffer) ii. The different terms knock each other out of the K altogether

E.

Directly contradictory terms are eliminated from the understood K UCC will fill them in if they can, otherwise K might not even be enforced if too much of the K is knocked out iii. The additional terms become part of the K unless: (when in doubt if additional or different, go with additional terms) 1. They were expressly limited in the offer 2. They materially alter the offer (giving unfair surprise), or a. i.e. warranty or changing warranty materially changes the K b. look at materiality at the outset and not at the effect of it c. An item is material if knowledge of it would have been a factor in the other party entering into the deal 3. They are seasonably objected to 4. If any of these, a K still exists but the additional terms are not part of it unless express assented to. a. Accepting the goods does not count as expressly assenting iv. Writings: 1. Even if the writings of the parties do not establish a K, if both parties actions apparently recognize a K, such a K exists. The terms of such a K consist of: a. The terms on which the writings of the parties agree, and b. Any supplementary terms asserted by the UCC. Not Between Merchants i. A definite and seasonable acceptance or confirmation that contains different or additional terms 1. Still acts as acceptance unless acceptance is made conditional on the different or additional terms ii. The additional and different terms are construed as proposals to the K. Neither are effective unless expressly assented to. iii. If acceptance is conditional, it is a counteroffer. iv. SHRINKWRAP 1. Additional terms sent with a product which are not prefaced with an additional terms will apply statement at time of sale are subject to UCC knock out rule regulations. (Well, not in California) v. CLICKWRAP 1. A clickwrap modification must be reasonably conspicuous so that the consumer is put in a place where there is unambiguous consent to the Boilerplate terms and conditions. If this isnt conspicuous its back to the Knock out rule

1. 2.

Indefiniteness
I. Certainty A. if there is a reasonable interpretation of a manifestation of intent to enter into a contract, the contract exists. i. if the manifestation is filled with mystery, no way to remedy. B. Terms of a contract i. must be "reasonably certain" 1. they provide a basis for breach and give an appropriate remedy for breach ii. If one or more of terms are left open it may mean that there is no true manifestation of intent and the statements are not meant to serve as an offer or acceptance iii. If term is material to the K, it must be certain upon agreement to be enforceable iv. Non-material terms can be left uncertain or left out entirely still a K Contracts with Gaps A. Gaps occur because there are aspects of the k that parties can't agree on today, or aspects patries didn't think of

II.

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IV.

Term may be unlikely and remote, but could be resolved today, but would require larger fees paid to atty's, etc to get the issues addressed in k C. Ct fills gaps by looking at type of k first then looking to approp. Code i. Good- UCC- full of gap fillers. Lots of k gaps provided for and ct will have to look no further than code to guide their decision 1. Specific matters and how to decide 2. Who gets to choose (seller or buyer) when there is a variety of fillers D. If no code applies, then ct looks at i. Standard/norm of the industry (rates, etc.) ii. Parties' Course of Performance under this particular K iii. Parties' Course of Dealing on other occasions iv. Custom of the Industry E. Court cannot fill in the quantity if it is missing from a K (unless an output K) F. Written Intention Rule i. If the parties have explicitly stated that they do not intend to be bound until the writing is signed, the answer is no. ii. The writing clearly is a condition precedent to liability. iii. Even without an explicit condition, the question is still whether parties who contemplate a written memorial of the agreement intend that event to occur before a contract is formed. G. Factors for determining if parties intended to be bound despite absence of document i. Whether a party express that they didnt want to be bound until the K was in writing ii. Whether there has been partial performance of the K iii. Whether all of the terms of the allege K have been agreed upon iv. Whether the agreement at issue is the type of K that is usually committed in writing 1. i.e. no writing required for dry cleaning K but big time merger is not a kind to do orally Goods Ks without specified price A. The parties if they so intend can conclude a contract for sale even though the price is not settled. B. In such a case the price is a reasonable price at the time of delivery C. Or if k says parties will agree to price and they don't, no k Contract to Negotiate A. An agreement to agree is not binding. An agreement to negotiate an agreement can be binding i. restitution is limited to expenses of negotiation, not the amount for breaching the unsettled k ii. Requires only a good-faith effort in negotiation. iii. no requirement to actually come to an agreement

B.

Statute of Frauds
1. Some ks do require a formal signed writing for legal enforcement of the promise A. Writing requirement purpose i. Cautions promisor he is getting into area of legal responsibility 2. Writing requirements A. Doesn't have to be put in writing immediately, can be drafted later B. Must identify the parties C. Only has to be signed by the party the action is against i. But you don't know who this will be in the beginning, so best to get both signatures) ii. If the offeror writes and signs the offer and the offeree writes and signs acceptance, the two are read together and both signatures count D. Doesn't have to be in one document i. Can be in several writings that add together to show the terms of the deal E. If the other party admits there was a k, then ok if no doc of if doc not signed 3. Three questions to ask in writing requirement A. Do we even have to worry about it? i. Only applies to certain ks that fall within the statute

B. Assuming it is within the statute, has the statute been "satisfied?" i. Have you produced necessary docs? C. If statute not satisfied, is there an exception that saves the deal from non-enforcability? 4. If statute satisfied, then begin regualr k analysis A. Ie Consideration still required even if the promise is in writing 5. Categories of k under statute A. Surety agreement i. Means you have a cosigner- Someone is secondarily liable should the principal default ii. Three parties 1. Surety (cosigner) 2. Debtor 3. Creditor iii. Main purpose exception 1. When an individual stands secondarily liable for his corp.'s debts 2. Main purpose is to protect his won interests 3. Don't have the three party set up 4. If you're really covering your own assets, deal can be entirely oral B. Ks not to be performed within one year of their making i. Could mean the k takes more than a year to perform ii. But also means other things iii. First figure out when the k formed (O+A=K) iv. Then measure from that date v. Cts have done everything they can to undermine this rule, they aren't sure why we have it vi. Cts ask "is it possible at all that the k can be performed within a year?" even if it's unlikely, or probably won't be, they will not require it in writing vii. If either party has completed his performance, the k in enforceable 1. Takes it back out of the statute of frauds viii. There may be several aspects of an agreement that fall under the statute 1. So even if one of the areas has an exception, the other areas still must be satisfied by a written k ix. UCC upcoming 2-201 1. If you have satisfied 2-201, the one year+ problem is solved C. Land sale i. Can be something other than outright sale 1. Easement 2. Mortgage ii. Land includes 1. Structures on land 2. Anything else affixed to the land a. If the seller severs the affixed thing from the property to sell it, it becomes a sale of goods not a sale in the interest of land b. If buyer takes the affixed thing, then it is still a sale of land i. Defends on who is doing the withdrawing from the land c. Exception: crops i. All growing things are always seen as a sale of goods iii. Exception to writing requirement 1. Works only on behalf of the buyer 2. It only allows for equitable relief a. Transfer of title, but no damages b. Unlike a written k in which buyer can claim damages 3. Required the buyer to exhibit extreme reliance a. Like building a house on property

D. Some sale of goods agreements see 2-201 UCC i. Sale of goods for $500 or more ii. Law takes the deal as it is and enforces it or not by the statute iii. Always first ask if the situation is a sale of goods 1. Approaches are very diff for goods under UCC v service under restatement iv. Using the predominant factor test, decide if the predominant aspect of the k is for goods or services 1. Do this by looking at the language of the k a. Did they use buyer, seller, purchase, etc v. client, commission 2. The billing of the k (price allocation) a. How much of the money is for the services v goods b. If much more paid for good, then it's goods and vice versa c. If it's not broken down, look at the fair market value of the good or the service to make a determination 3. Were the goods moveable at the time of the k? a. This is key in most goods ks v. If courts have a close call, they often stretch into a sale of goods and apply UCC vi. 2-201 exceptions 1. 3a- Goods specially manu for the buyer and goods cannot be sold to anyone else, then the k is enforceable without a writing if seller has begun performance or ked to procure the materials 2. 3b- If you admit there was a contract for 300 units but you are being sued for 500 units, it will only be enforced up to the 300 units vii. 2-201 2 1. "sufficient against the sender"- If the sender were the party to be charged, would the paper be sufficent to overcome statute? a. Basically, if the shoe were on the other foot, would it prove a case against sender? 2. As long as the document is sent, done 3. After receiving document, recipient has only 10 days to send written objection to the document or any of its contents a. This means that recipient can basically shop around or think about it during this time as long as he doesn't miss the deadline for objection E. Executor's promise to honor promise made by deceased F. When marriage is the consideration G. In TX if a doctor makes a promise not to treat a patient in a certain manner must be in writing H. A promise that cannot be performed within the lifetime of the promisor i. Usu. Promises to will something after death 6. Defenses to SOF A. Reliance B. Estoppel (always requires reliance) i. One party relies on other party's promise to sell 1. Other party estopped from using statute if it would be unjust ii. One party promises not to invoke the statute if there is a dispute 1. That party can't later invoke it because of promise not to iii. One party says "statute doesn't apply," but it does 1. That party can't try to use the statute later

Policing the Bargain

1. Steps to Analyze Whether a Contract was Properly Formed A. Were both parties capable of entering into the K? i. Minors ii. Incompetents

B. What was the behavior of the parties associated with formation? i. Mistake ii. Duress iii. Fraud iv. Misrepresentation C. What is the substance of the Agreement? i. Unconscionability ii. Public Policy/ Illegality 2. Incapacity A. Minority i. K Voidable Not Void ii. A contract between a minor and an adult can be voided by the minor at any time up to and including his ascension into adulthood. The minor only has to return whatever he has left when he voids the contract (restitution). iii. 3 views of Sellers Options if Minor Misrepresents Age: 1. Massachusetts view: k still voidable by kid, no recourse for seller 2. Majority View: Minor can avoid K, but must return Seller to status quo (seller can sue kid) 3. Estoppel View (TX): You said you were adult, so you are for this k. seller's belief that kid was old enough must be reasonable iv. Exceptions 1. Necessities Exception: A Seller can get restitution (value of benefit conferred) on necessities 2. Coming of Age Exception: (Ratification) 3. Co-Signer: Can help make a K valid by promising to cover minor's liability B. Incompetence i. K voidable if 1. Cognative test- he cannot understand in a reasonable manner the nature and substance of the k 2. Awareness test- he cannot act reasonable toward the k and the other party has reason to know ii. 1st Question: Were the terms of the K fair? 1. Yes- Restitution relief to the noncrazy 2. No- No Restitution (i.e. selling a house for $50 takes advantage of incompetent person) nd iii. 2 Question: At the time of the deal, does the other party have reason to suspect incompetence? 1. Yes: a. Proof: Incompetent need only prove he could not act reasonably toward the K. b. Remedy: No restitution, possible rescission, possibly none. As justice requires (R 15-2) 2. No: a. Proof: Incompetent has to prove he did not understand nature and consequences of the K (heavy burden) b. Remedy: Restitution Damages i. If no restitution is available, then sometimes we enforce contract after all 3. Mistake A. Unilateral- when one party makes or accepts an offer by mistake or containing a mistake i. Restatement 153 allows One who makes a mistake in contract entitled to rescission if he can establish all of the following: 1. Mistake is material to substance of k 2. Enforcement of k would be unconscionable (alternative showing, not always required)

3. Mistake was made in good faith 4. Can void k a. If nonmistaken party knew or should have known the mistake b. If nonmistaken party caused the mistake ii. Legal duty 1. Can't get out of k if you violated a legal duty a. Gross negligence in making offer iii. If there was reliance you might not be able to get out of k even if there was a mistake B. Bilateral- When there is a mutual mistake between the parties about a basic assumption that materially effects the basis of the K, it is voidable by the adversely affected party i. Requires that parties be mistaken about the same thing in k ii. Must be material mistake iii. Must be a mistake of fact that exists in the real world now (not projections or predictions) iv. Easier to void k under this than unilateral 1. unconscionability is the difference between mutual and unilateral mistake a. You don't have to ask this question in a mutual mistake i. Obviously neither party knew of the mistake, should have known, or caused the mistake because both parties are operating under the mistake ii. Doesn't matter if one party is more experienced in the area of the k, can still get out of k if mistake was central to k v. (R 154) Assumption of the Risk (main battle ground) A party bears the risk of mistake if 1. The terms so state, OR 2. The party is aware of his limited knowledge and contracts anyway 3. The court says it is reasonable to infer one party assumed the risk vi. Negligent failure of a party to know or to discover the facts as to which both parties are under a mistake does not preclude rescission or reformation on account thereof unless Gross Negligence is found by the courts. 4. Misrepresentation A. Applies to factual matters about the real world today B. Opinion cannot be the basis for misrepresentation because they arent facts i. But expert opinions can be taken as facts C. If I misstate factual information, it can i. Allow you to get out of k 1. If material or 2. If fraudulent a. Doesn't have to be both, only one ii. May provide basis for tort action in misrepresentation 1. Must be material and 2. Must be fraudulent D. Four things to evaluate i. what would a reasonable person have understood from the factual statement? ii. was it a lie? 1. Even if the lie was about something immaterial, ct views it as an attempt to induce party into k iii. was the misrepresented fact material to the k? 1. If misrepresentation if good faith and not material, no rescission iv. was there reliance on the misrepresented material fact? 1. Misrepresentation induced a degree of actual, reasonable reliance in entering the k. E. Types of misrepresentation i. Express (bold faced lie) ii. Half-truths (evasive response, or literally true but misleading response) iii. Concealment: Misrepresentation without words (plaster over termite damage to house

5. Nondisclosure A. Courts say sellers don't have to put all your cards on the table i. You can have strategic information you share or withhold 1. Only under certain conditions do you have to come clean a. To correct a previous statement b. If you know other party is under a mistake c. If there is a relationship of confidence i. Atty client ii. Dr. patient iii. Imposes on stronger party an obligation to look out for the weaker one d. If you know buyer woudn't buy if he knew about the issue e. The information is not readily accessible to Buyer through reasonable inquiry, and f. The information is not regarded as the Sellers own property, acquired through special efforts or study. 6. Duress A. A k entered into under duress will not be enforceable B. Elements: i. Must be a threat ii. Threat must be wrongful 1. Not necessarily unlawful 2. If I threaten someone, it can be wrongful even if it's legal for me to take that action 3. Restatement 176- A threat is improper when a. It is a crime or tort b. It is a threat of criminal prosecution c. It is a bad faith threat of civil suit d. If the threat is a breach of good faith and fair dealing under an existing k e. A threat is improper if the resulting exchange is not on fair terms and f. The threatened act would harm the recipient and not significantly benefit the threatener iii. The wrongful threat has to produce the k 1. Causation- threat played a part in decision to enter k a. If you were going to jump on the offer anyway, it probably won't matter that you were also threatened iv. Most cts also require the threat to be such that an RP would have agreed to the k under the circumstances 1. Take into consideration the individual also i. Duress v. Pre-Existing Legal Duty Rule 1. Duress is how you get your money back a. (since all the money has already been paid). 2. Pre-existing legal duty is how you avoid paying a. (consideration analysis and only useful for determining when an obligation is enforceable). 7. Undue influence A. Related to duress B. Restatement 177- unfair persuasion of a party who is under the domination of the person exercising the persuasion or who is justified in assuming the person will not act in a manner inconsistent with his welfare C. Factors for determining undue influence i. Whether trans was discussed at unusual or inappropriate time ii. Unusual place iii. Insistence that the k be agreed to at once - has to be done today 1. Extreme emphasis on consequences of delay

2. Statements that there is no time for getting financial or legal advisement 3. Be careful, though because not all same day deals are undue influence 8. Unconscionability A. when a K or a K's term is so in violation of the public policy or one-sided that it would be unconscionable to enforce the K, or the particular term of the K. B. Restatement 2-302 i. If k or any clause of the k is unconscionable, ct can 1. Void entire k 2. Void that clause and enforce the rest of k 3. Limit the application of the clause to avoid an unconscionable result ii. Judge makes the unconscionability determination 1. Bases this on the circumstances surrounding the deal when it was made a. Not what has happened since formation that makes it seem unfair 2. Ct has to evaluate this on a case by case basis a. Must give the drafter opportunity to be heard as to why he structured the deal that way C. Two factors must be met to unconscionability i. procedural unconscionability- Lack of meaningful choice 1. Deals with the way the deal was struck 2. Something about the situation must strike the ct as wrong a. In another language, or very tiny type ii. Substantive unconscionability 1. The substance of the k that arose out of the procedural problem is unconscionable 2. Terms are unreasonably favorable to one party and unfavorable to the other D. Ct expects better k comprehension from "sophisticated business people" i. Unconscionability claims more harshly scrutinized E. Adhesion contracts i. Deal is already structured and detailed before it is presented to you 1. There is no negotiating the terms on the form a. Forms tend to be very long and complicated with lots of legal jargon b. Highly favorable to the drafter 2. Usually uniform throughout an industry 3. Makes it hard to go elsewhere for the product if you don't like a term 4. Signing forms in multiple places a. Designed to cover the co on the troubling parts of the k ii. Three controls over these ks 1. Disclosure a. More information required seller --> buyer so buyer is better able and more informed when making the decision to k b. Restatement 211-You must disclose problematic terms or other party is not bound by the term i. There is still a k though c. As long as you are forthright and identify the potential problematic term of k to the other party i. If they still agree, then the term is fine ii. Though the ct may still find a term unconscionable despite disclosure 2. Terms of exchange a. Certain things are problematic i. Ex: funeral arrangements. We recognize that those purchasing a funeral are not in a good bargaining position because of the emotional so we police those transactions carefully 3. Remedies

a. Limiting preventative clauses in ks

Public Policy and Illegality

1. Public policy matter A. Doesn't turn on the illegal nature of the goods B. Behavior required under k may be problematic from a policy standpoint but is not illegal C. Some ks may require you to do an illegal act, and the cts may still enforce i. Depends on the gravity of the illegality ii. How intertwined (unseverable) the terms are from the rest of the K 2. In almost every instance, when the k is rescinded, you don't get to keep the goodie A. in almost all instances, unjust enrichment not allowed B. Cts. Will leave the parties where they are. So if benefits have been conferred, too bad 3. Weighing Interest For Enforcement Factors: A. Enforcement: i. Parties justified expectations ii. Any forfeiture that would result if enforcement were denied, and iii. Any special public interest in the enforcement of a particular term B. Against Enforcement: i. Strength of that policy as manifested by legislation or judicial decisions, ii. Likelihood that a refusal to enforce the term will further that policy iii. The seriousness of any misconduct involved and the extent to which it was deliberated, and iv. The directness of the connection b/t that misconduct and the term 4. Non-competition clauses: may be unenforceable if they are overly broad because they hurt the economy (no more cheaper prices). A. Must be specific (or not too broad) in terms of: i. Geography territory ii. Period of time iii. Manner (whats being prohibited by the covenant, i.e. all commercial activity) 1. What they are prevented from doing B. Does it extend beyond what the employer needs by reasonable means of protection C. What do we do when the covenant is unreasonable: i. Can reform to make it reasonable, OR ii. Can eliminate the clause all together 5. Inducing Actions: A. Lobbying is ok b/c it addressed to that persons reason B. Bribery is not ok b/c it does not address that persons reason C. Threats are NOT improper unless they become illegal or go too far D. You dont get restitution on Ks that induce people by improper means 6. In Pari Delicto Equally at fault A. Dont care who is better off if both parties are equally in wrong, courts leave them as they are B. In this case, got to keep the money C. If both parties are not equally at fault, court may grant restitution 7. In Locus Penitentia Place of Forgiveness A. If one of the parties backs out and reports the activity to the authorities (while goal is still attainable) court may grant restitution i. I.e. Car for a Bank Robbery 8. Lack-of-License Exception: If K is illegal because of lack of a license, consider the reason for the license requirement A. Raising Revenue: Still enforceable i. i.e. Decal on your boat at Lake Conroe B. Protect the Public: Not enforceable i. i.e. lawyers, doctors, etc.

9. Contract Out from Under Tort Liability A. Not for Intentional or Reckless behavior B. But yes for Negligence i. but not your boss, public service company, and one class to another C. Product Liability can work if fairly bargained for i. however, paperwork alone is not enough

Warranties and Disclaimers

I. Warranties A. Give protection B. bastard combo of k law and tort C. UCC generalized the concept of warranties D. Parties can k out of warranties in most cases i. But can't get out of obligation to k in good faith or unconscionable terms E. Warranties relate to quality of seller's performance i. Seller: whoever is parting with an object or good under the k F. Warranty is part of k unless specifically waived in correct manner 2-312 Warranty of title A. Gives Protection: i. Against reasonable claims by third persons ii. Hassles that result from bad paperwork iii. Title does not always have to be written B. Good Title: i. Means ownership ii. No battle between reasonable claims 2-313 Express Warranties by Affirmation, Promise, Description, Sample A. Ways to create: i. Any promise about the goods goods will conform to affirmation or promise ii. Any description of goods goods will conform to the description iii. Sample or model that is used for bargaining basis all goods will conform to that sample or model B. Description and affirmation of fact i. Description: conveys certain kinds of info about the object for sale ii. To distinguish between opinion and fact statements 1. Examine the meaning of the words used iii. Statements about cost of goods not warranties iv. Misstatement has to relate to the goods in question to be a warranty v. Express warranties without words 1. Samples, models, pictures, product demonstrations 2. The whole of the goods must conform to above vi. Practically impossible to disclaim an express warranty once given vii. Express warranty breach and misrepresentation are a lot alike 1. Difference is reliance a. Misrepresentations after the k is made doesn't count because no reliance on that fact in making k b. Misrepresentations about things not related to the good don't count 2. Refunds and exchanges in stores a. Usually allowed

b. Most of the time the completion of the transaction doesnt mean the end of the relationship c. As long as there is still a relationship, misrepresentations after sale will still create express warranties 2-314 Implied Warranty: Merchantability: Usage of Trade A. Merchantability i. Only made by merchants ii. Goods must be fit for the ordinary purpose they are used 1. Usually applies common experience to determine iii. Reasonable expectations vary upon the circumstances of the sale 1. Price is a good way to determine reasonable expectations a. However, no object is expected to be dangerous i. All dangerous goods are unmerchantable ii. If a good is unmerchantable for a few people but not for most people, the product will most likely be given a warning label for the benefit of the few rather than taking the product off the market as unmerchantable iv. Applies to used goods as well as new 2-315 Implied Warranty: Fitness for a Particular Purpose A. This is not limited to merchants. Includes all sellers. B. You have a particular need and you go to the appropriate merchant and seek advice on what product will work for your purpose i. Created if the seller makes an express warranty in word or action C. Factors i. the seller knows the particular purpose for which you need a good and that the buyer is relying on seller's expertise to select a good ii. seller supplies the good iii. buyer does rely on seller's advice/ knowledge iv. thing is not useful for that purpose D. If the buyer goes in knowing what he wants and buys it, there is no reliance on the seller's knowledge E. But it only applies to things for a particular purpose, not the ordinary purpose of the good i. Doesn't work if your lawn mower doesnt cut grass Disclaimers 2-316 Exclusion or Modification of Warranties A. Takes away/Limits protection B. Exclusion or modification of warranties i. Can limit damages ii. Can limit liability C. Express Warranty Disclaimers i. Express (not easy to do) i. Tried to read the express warranty and the disclaimer together ii. What if the terms are contradictory: express warranty trumps disclaimer iii. Almost impossible to disclaim an express warranty. D. Implied Warranty Disclaimers i. Merchantability 1. Disclaimers must literally mention "merchantability" to limit the express warranty

II.

2. Disclaimers don't have to be in writing, but if they are they must be conspicuous i. Must draw the buyers attn to notify them you are taking away protection from the warranty ii. Mark as different from the rest of the text iii. Even if the buyer saw and understood it, if the court doesn't think it was conspicuous, most cts will still throw out disclaimer---inconspicuous to the reasonable person standard iv. Conspicuous to the RP- ct will uphold disclaimer even if you didn't see it ii. Fitness warranty disclaimer 1. Does not have to say "merchantability" 2. Must be in writing and conspicuous 3. Any kind of language that communicates to buyer that seller is not resp for product failure E. Other Methods i. ALL implied warranties are excluded by language like "as is", "with all faults", or other language. ii. When the buyer has examined the goods as much as he wants, or refuses to examine the goods, there is no implied warranty for things which an examination would have revealed to him. 1. Only applies to patent defects 2. Doesn't apply to things you wouldn't be able to observe. iii. Can be excluded or modified by course of dealing or course of performance. 2-719 Contractual Modification or Limitation of Remedy A. B. C. D. Says nothing about conspicuousness Its ok to limit some remedies as long as law doesnt guarantee them Differs from Unconscionability because it is backwards-looking The agreement may provide for remedies in addition to or in substitution for those provided in this article and may limit or alter the measure of damages recoverable under this article by i. limiting the buyer's remedies to return of the goods and repayment of the price ii. or to repair and replacement of non conforming goods or parts and iii. Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy E. Where circumstances cause an exclusive or limited remedy of its essential purpose, remedy may be provided. F. What courts will do: i. Void the K all together ii. Void the remedy-limiting portion of the contract iii. Plug in other UCC remedies G. When a limitation can be eliminated i. Unconscionable ii. Failure of its essential purpose H. Consequential damages i. The extra damages that one incurs as a result of a breach of K ii. May be limited unless the remedy has failed its purpose or was unconscionable iii. Don't forget other principles that we have discussed 1. This is assuming that the disclaimer is part of the contract 2. Did he do it right, and does it survive Unconscionability 3. 2-207: did it become part of the K, it if didn't come in, then you don't have to worry about it.