Contracts Outline

I. Formation
a. Offer: an objective manifestation of a willingness [by the offeror] to enter
into an agreement [that creates the power of acceptance in the offeree]
i. Knowledge by the offeree: the offeree needs to know about the offer in
order to [have the power to accept an offer]
ii. Missing terms: under the common law you must have the essential terms
of the contract including the (price, party’s names, subject matter and
quantity); under the UCC, the UCC [as long as long as the parties intend
to create a contract] will fill in the gaps [if other terms are missing] and
the only requirement is the quantity [and subject matter]
iii. Language
1. Bilateral: if a return promise is requested then the contract is
bilateral
2. Unilateral: if an act is requested then the contract is unilateral
iv. Invitation to deal
1. An offer should not be mistaken for an invitation to deal, an
invitation to deal will not create a counteroffer – the more definite
the statement the more likely it is to be an offer
b. Termination of offers
i. Lapse of time
1. If an offer does not set a time limit for acceptance, the power of
acceptance terminates at the end of a reasonable period of time
ii. Death/mental capacity
1. The death of a party will destroy an offer prior to acceptance but it
does not void the contract after it has been accepted
a. Exception: an offer that is an option does not terminate
upon death or mental incapacity
iii. Destruction or illegality
1. An offer that becomes illegal is terminated
iv. Revocation
1. Option contracts: contracts created by a promise not to revoke, it
requires consideration unless it is within an existing contract
2. UCC-Firm offer: a promise not to revoke an offer for a certain
amount of time, it does not require consideration -irrevocability
cannot exceed 90 days
a. (1) the offeror is a merchant (2) there is an assurance
that the offer is to remain open; and (3) the assurance is
contained in a signed writing from the offeror
3. Promissory estoppel: even if a contract was not formally formed,
a contract will be found under the doctrine of promissory estoppel
if one of the parties has detrimentally relied on another’s promise
a. For an option contract: foreseeable
4. Partial performance: in a unilateral contract the party is allowed
to fully perform after it has begun partial performance
v. Revocation of general offers
 1. Advertisement: can only be revoked by notice that is given at
least at the same level of publicity as the offer
vi. Rejection by offeree
1. An offeree can reject an offer through a counteroffer
2. Effective upon receipt
vii. Revival of offer
1. Offers are allowed to be revived
2. Under the common law, they will need new consideration
c. Acceptance: show of intent to be bound by a contract
i. Unilateral contract
1. In a unilateral contract, acceptance is demonstrated by
performance
2. The offeror does not need to be aware of the promisee’s
acceptance, but offeree needs to be aware of the offer
ii. Silence
1. In limited instances, silence can indicate acceptance
2. It will depend on whether the conduct demonstrates a willingness
to be bound by the contract
iii. Shipment of goods
1. Buyer requests that the goods be shipped will be construed as
inviting acceptance by the seller either by a promise to ship or by
prompt shipment
iv. Mailbox rule
1. An acceptance will be received upon the tender of a letter in a mail
(the letter does not need to have been delivered in order to
constitute an acceptance)
2. Acceptance and then rejection
a. Acceptance will control unless offeror receives the
rejection first and detrimentally relies
3. Rejection and then acceptance
a. Mailbox rule will not apply if a rejection is sent first
(whichever one is received first will prevail)
4. Options and other irrevocable offers
a. Options are not subject to the mailbox rule
d. Consideration: a deal in which the parties exchange promises involving a legal
detriment or benefit
II. Objective Theory of Contracts
a. Express contracts: contracts that are written down
b. Implied-in-fact: contracts that are created through the party’s conduct
i. To be contractually bound, the person must also know or have reason to
know that the conduct may cause the offeror to believe the offer was
accepted
III. Counteroffers and UCC § 2-207
a. Mirror-Image Rule
 i. Common law: the common law follows the mirror image rule where – the
terms in the acceptance must match the terms of the offer exactly
(otherwise it is a counteroffer)
1. Conditional acceptance is another form of a counteroffer
ii. UCC: the terms of the acceptance do not have to mirror the terms of the
offer. Exceptions:
1. The term materially alters the original contract
2. The offer expressly limits acceptance to the terms of the offer
3. The offeror has already objected to the additional terms, or
objects within a reasonable time after notice of them was
received.
b. UCC Rule – Acceptance contains additional or different terms
i. One or both parties are not merchants – no acceptance
ii. Both parties are merchants – contract exists under the terms of the
acceptance
c. The Knock-Out Rule
i. When the acceptance has a different term from the initial offer
ii. Neither term will govern and the general gap-filling provisions of the
UCC will apply
d. Confirming memo
i. Arises when the parties a contract (usually by verbal agreement) and one
party sends a confirming memo with additional terms
IV. Consideration
a. Gifts
i. Promises must be bargained for, gift promises and conditions gifts will not
constitute consideration
b. Tricks regarding consideration
i. Illusory promise: a promise that does not demonstrate full commitment to
the deal
c. Past consideration is not consideration
i. Under common law: a modification will require new consideration and
past consideration cannot constitute consideration for a valid offer
d. Promising not to sue
i. Settling a legal claim can be sufficient consideration but only if (1) the
plaintiff has a good faith belief in the validity of the claim or (2) there is
reason to doubt the validity of the claim due to uncertain law
e. Contract modification
i. Common law: a modification requires new consideration, consideration
cannot be carried out through a pre-existing duty
1. Exceptions
a. A change in performance
b. A third party promising to pay
c. Unforeseen difficulties that would excuse performance
ii. UCC: a modification will be valid as long as there is good faith,
consideration is not required
f. Consideration substitutes
 i. Promissory estoppel: (1) promise is made that would be reasonably be
expected to induce reliable (2) party has detrimentally relied (3) injustice
can only be avoided by enforcement of the promise
ii. Quasi-contract: when a plaintiff confers a benefit on a defendant and the
plaintiff has a reasonable expectation of compensation, allowing the
defendant to retain the benefit without compensating the plaintiff would be
unjust
iii. Moral obligation and subsequent promise: some jurisdictions recognize
that a moral obligation plus a subsequent promise to pay can be binding
iv. The seal: a seal on a document does not act as consideration in most
jurisdictions
V. Defenses
a. Misunderstanding: arises when each party attaches a different meaning to the
same words, you must show that (1) the parties use a material term that is open to
two or more reasonable interpretations (2) each party attaches a different meaning
(3) neither party knows, or should know, of the confusion
b. Incapacity: one of the parties lacks capacity to carry out the contract due to
mental illness infancy or intoxication (if the other side knows or has reason to
know this
c. Mistake
i. Mutual mistake: a contract will be deemed unenforceable if both parties
were mistaken as to an essential term of the contract: (1) fact existing at
the time of the deal (2) has material impact on the deal (3) the impacted
party did not bear the risk of mistake
ii. Unilateral mistake: allows the adversely affected party to rescind if: (1)
can prove elements of mutual mistake and either (2) the mistake would
make the contract unconscionable or (3) the other side know of, had
reason to know of, or caused the mistake
VI. Defenses Part II: Fraud, Duress, Illegality and Unconscionability
a. Misrepresentation: (1) a misrepresentation of a present fact (2) that is material
OR fraudulent (3) that is made under circumstances in which it is justifiable to
rely on the misrepresentation
b. Fraud: fraud happened in the execution of the contract making it voidable – if the
affected party adversely relied on the misrepresentation (i.e. you trick someone
into signing something that they do not even know is a contract)
c. Non-disclosure: one of the parties failed to disclose an essential term that would
have made the other party unwilling to enter into a contract
d. Unconscionability:
i. Procedural: a defect in the bargaining process itself (hidden term, an
absence of meaningful choice)
ii. Substantive: a rip off in some term of the contract
VII. Statute of Frauds
a. What it covers: (1) marriage, (2) suretyship (3) service contracts that cannot be
completed in a year (4) sale of goods under the UCC that are for $500 or more (6)
real property – only those transferring an interest in the property, leases of less
than 1 year usually not included
 b. Satisfying the SOF
i. Writing and signature: in the UCC, you only need the quantity; signature
can be implied, it must: (common law)
1. Show that a contract has been made
2. Identify the parties; and
3. Contain the essential elements of the deal
ii. Full and Partial performance:
1. Under the UCC, exceptions to the SOF include: full performance,
partial performance, custom made orders or a confirming memo
2. Under common law, full performance by either side of a one
year contract will satisfy the SOF, real property only necessitates
part performance to satisfy the SOF
VIII. Performance
a. Parol Evidence Rule: bars the admission of oral statements or writing that
happened prior to the formation of the contract
i. Integrated writing
1. Partial integration
2. Complete integration: merger clause
ii. Extrinsic terms naturally omitted
iii. UCC: less strict than common law, will generally admit prior statements
iv. Exceptions from both:
1. Ambiguous terms
2. Separate deals
3. Regular contract law defenses
4. Condition precedent
5. Custom and usage
b. Warranties
i. Express warranties: a promise that affirms or describes the goods and
is part of the basis of the bargain is an express warranty unless it is merely
the seller’s opinion
ii. Implied warranty of merchantability: warrants that the goods are fit for
ordinary commercial use
iii. Implied warranty of fitness for a particular purpose: warrants that the
goods will satisfy this special purpose
c. Conditions
i. Condition subsequent: is a type of condition in contract law that if it
occurs, or fails, can terminate an existing duty of performance or the
entire contract itself. For example:
1. An employment contract stating that the employee’s continued
employment is conditional upon maintaining a specific
professional license. If the employee loses this licenses, the
condition subsequent is met, and the employer can terminate the
employment.
ii. Condition precedent: a condition that precedes the obligation to perform
iii. Express conditions: cannot be waived, must be met in order to perform
unless it is excused
 iv. Satisfaction conditions: dependent on aesthetic taste, preferred approach
is the objective standard
v. Waiver: the party receiving the protection of the condition can waive the
condition by (1) words or by (2) conduct
1. Condition can be waived if the other party wrongfully interferes
d. Implied Conditions
i. The constructive condition of exchange: one party’s performance is
conditioned on the other side’s performance
ii. Common law: a party will satisfy CCE if there is not a material breach
iii. UCC
a. Perfect Tender: a seller has a duty to deliver goods that
comply with the terms of the contract. Two rules (1) perfect
goods (2) perfect delivery
b. Revocation of acceptance: the buyer may revoke an
acceptance of the goods if the goods seem OK when
delivered but a defect is discovered within a reasonable
time
c. Seller’s right to cure: a seller has the right to cure its
tender of a good if it is non-conforming with the terms of
the contract and (1)had reasonable grounds to believe that
the buyer would accept a replacement or (2) before the
date of performance
d. Delivery: goods must be delivered as specified in the
contract; multiple deliveries are ok with installment
contracts
e. Methods of tender/delivery:
i. For a shipment contract = then the risk of loss
during delivery rests with the buyer
ii. For a destination contract = then the risk of loss
during delivery rests with the seller
f. Risk of loss problem
i. The breaching party bears the risk of loss
IX. Excuses
a. Impossibility and impracticability: unforeseeable factors render the contract
impossible and/or impracticable to perform
b. Death after a contract: does not render the contract unenforceable
c. Frustration of purpose: a contract can be rescinded because the purpose for
contracting has been frustrated
d. Performance excused because the initial contract has been modified
i. Cancelled: both parties can agree to just walk from a contract as long as
there is some performance remaining, otherwise there is no consideration
for this modification
e. Accord and satisfaction: when a party is not satisfied with tender they can
accept the new tender at a specific price; a satisfaction of the accord agreement
will discharge both the original contract and the accord contract
 f. Novation: when two parties agree that a third person will be delegated the duties
under the contract
g. Anticipatory repudiation: a party anticipatorily repudiates when it indicates that
it will unequivocally breach; 2 options (1) treat the repudiation as a breach and
sue immediately for damages (2) ignore the repudiation, demand performance,
and see what happens
X. Remedies
a. Expectation damages: places the parties in the position they would be in if the
contract had been performed
i. Calculating damages: the loss of value of the breaching party’s
performance + incidental damages + consequential damages – cost avoid –
loss avoided
ii. UCC Formulas:
1. Seller breaches and buyer has goods: buyer gets the value of the
goods as contracted for (-) the value of the goods as delivered
(+) incidental and consequential damages
2. Seller breaches and seller has goods: buyer gets the difference
between the market price (or replacement price) and contract
price (+) incidental and consequential damages (-) expenses
saved
3. Buyer breaches and buyer has goods: seller gets the contract
price
4. Buyer breaches and seller has goods: seller gets the difference
between the contract price and market price (or resale price) (+)
incidental damages minus expenses saved
5. Loss volume seller: the seller gets lost profits (+) incidentals.
Tip: a seller is a lost volume seller when there is an unlimited
amount of product available. The MBE fact pattern will make this
very clear.
iii. Limits on expectation damages: limited by the party’s mitigation efforts
b. Unforeseeable consequential damages: damages incurred as a result of breach
that were (1) foreseeability (2) certainty (3) mitigation - there must also be a
causal link between the breach and the consequential damages
i. Examples:
1. If a breach of contract causes a business to lose profits
2. Missed business opportunities
3. Additional costs to complete a project or fulfill obligations to a
third party
c. Mitigation: the non-breaching party has a duty to mitigate its mitigation damages
will be reduced from any expectation damages
d. Other money damages and specific performance
i. Reliance damages: a party can alternatively collect reliance damages; the
goal is to put a party in the same economic position that it would be in if
the contract has never been created in the first place
 ii. Restitution damages: the plaintiff recovers (i) the reasonable value of the
defendant obtaining that benefit from another source, or (ii) the increase in
the defendant’s wealth from having received that benefit
1. Granted in contracts that are implied in law which arises when
the plaintiff has conferred a benefit on the defendant, the plaintiff
reasonably expected to be paid, and the defendant would be
unjustly enriched otherwise
2. A court may allow restitutionary recovery if:
a. The plaintiff has conferred a measurable benefit on the
defendant
b. The plaintiff acted without gratuitous intent; and
c. It would be unfair to let the defendant retain the benefit
because either (i) the defendant had the opportunity to
decline the benefit but knowingly accepted it, or (ii) the
plaintiff had a reasonable excuse for not giving the
defendant such opportunity
iii. Liquidated damages: limited in contract law
1. These clauses are only enforced if the damages are difficult to
estimate at the time the contract was made AND a reasonable
forecast of damages
iv. Punitive damages: very rare, only when contract law is merged with
another sect of the law such as torts
v. Specific performance: usually only occurs in contracts where the type of
performance is unique such as a unique parcel of land
1. Otherwise barred by the 13th amendment
vi. Right of reclamation: Arises when an unpaid seller tries to reclaim goods
that were sold on credit when the buyer is insolvent
XI. After party
a. Third party beneficiary contracts
i. Types of parties: (1) intended and (2) incidental
ii. Revoking third-party rights:
1. Rights will vest when third party (1) knows about the promise and
has changed position in reasonable reliance on the promise (2)
manifests assent to the contract at one party’s request or (3) or files
a lawsuit to enforce the contract
2. Rights will not be revoked if: (1) the beneficiary detrimentally
relies (2) the beneficiary manifests ascent to the contract (3) the
beneficiary has filed a lawsuit to enforce a contract
b. Assignment and Delegation
i. Assignment: duties of the original promisor are discharged, assignment of
rights
1. If the rights are assigned without consideration, the assignment
is generally revocable and the last assignment controls
ii. Delegation: only the duties are assigned
1. A delegate is generally not liable for breach unless she receives
consideration from the delegating party
 XII. Clarifying Concepts
A void v. voidable contract  A void contract results in the entire
transaction being regarded as a nullity, a if
no contract existed between the parties,
the contract is unenforceable
 A voidable contract operates as a valid
contract unless and until one of the parties
takes steps to avoid it
Four forms of consideration  A return promise to do something
 A return promise to refrain from doing
something legally permitted
 The actual performance of some act
 Refraining from doing some act
When a pre-existing duty is at issue, what  Give something in addition to what is
can the promisor do to create valid already owed
consideration?  Vary the pre-existing duty in some
way
Requirements contract  A buyer agrees to buy all that is
required of a product from the other
party (there is consideration in these
agreements because the promisor
suffers a legal detriment
Output contract  A contract under which a seller
agrees to sell all that she
manufactures of a product to the
buyer. There is consideration in
these agreements because the
promisor suffers a legal detriment