Contract Short Outline 5 Contract Questions to Keep In Mind 1. Has a Contract been formed? (are there enforceable promises)?

2. Have all conditions been satisfied? 3. If not, does any nonfulfillment discharge any party from the duty to perform? 4. Has there been an unexcused breach? 5. If so, what remedy or remedies are available under the terms of the contract or by law? Notes: y The professor likes to analyze offer and acceptance one way, and then flip the offeree and offeror if possible and analyze it the opposite way, especially if this is done to make a result fair. y Sale of software is not considered one for goods. y Voidable contract: The aggrieved party can choose to avoid the contract or keep it in force. Assenting to a Contract y One is bound to a contract they had a chance to read but didn't. y The Objective Test: Would a reasonable person conclude that a party's words and actions constituted an offer (objective assent is measured). Offer and Acceptance y A contract is formed upon acceptance, so the ability to form is given to the offeree. y If the offeror retains the right to make a final decision, there is no offer but a proposal. y Once a contract is formed, mutual assent is needed to dissolve it. y UCC 2-204 o Acceptance can be by any manner that shows agreement, unless a specific method of acceptance is listed in the contract. o A contract can exist even if the moment of creation is not defined. o If one or more terms are left open, the contract does not fail if intent to create a contract can be shown and there is a basis for remedy. y Restatement 59: If a response to an offer changes a term, it is not an acceptance but a counter-offer. y Acceptance can be by any manner that shows agreement, unless a specific method of acceptance is listed in the contract. o However, if a specific method is laid out, the contract MUST be accepted using that method. y Acceptance must be communicated to an offeror to be valid, except when the mailbox rule is used. y Communication to an agent of acceptance is not valid, however notice of revocation to an agent is sufficient to revoke. y In order to accept an offer, the offeree needs to know an offer exists. y Silence operates as acceptance only if: o Benefit Taken o Stated by Offeror o Prior Dealings Irrevocable Offers y Option Contract (common law): A promise not to revoke an offer. o Mutual assent o Consideration o An option contract cannot be terminated after consideration is given (money, for example) or performance begins (also consideration). y Firm Offer (UCC 2-205): Does not need consideration like in the common law. o Signed writing o Made by a merchant o Which states an offer will stay open.

Advertisements as Offers: An advertisement is generally not an offer, unless it is clear, definite, explicit, invites a particular performance, and leaves nothing open for negotiation. The Mailbox Rule: An offer is accepted upon dropping the mail in the mailbox, as long as the offer expressly or impliedly authorizes acceptance via mail. Also applies to e-mail, fax, telegram, etc. ONLY APPLIES TO ACCEPTANCE. y Exceptions: o Does not apply if the mailing is known not to have gone out (mailman drops letters down storm drain), unless the acceptance does in fact reach the offeror. o If the offeror mails a rejection, but then mails an acceptance, whichever arrives first rules. Common Law Last Shot Rule: Gives precedence to the terms of the last communication, when a party commences performance and does note an objection to a counter-offer (for example in an invoice. Termination of an Offer: An offeree's power of acceptance may end in the following ways: y Lapse: If an offer states a time or date when it lapses, or if not a reasonable time. y Rejection y Counteroffer y Revocation y Death or mental disability of the offeror y Condition not performed Unilateral v. Bilateral: In a unilateral contract, one party makes a promise, and only performance is required to form a contract. In a bilateral contract, both parties make a promise to one another, and consideration is a factor. Contract for goods v. Contract for services: Courts used two tests to determine if a mixed contract is for goods or services: y Gravamen Test: Looks at the portion of the transaction on which a complaint is based to determine whether it s for goods or services. y Predominant Factor Test: Looks at the transaction as a whole to determine whether the predominant purpose is for sale of goods or supplying a service. Consumer Form Contracts: Policy note - Courts are likely to analyze contract in a pro-consumer way. Many of these "rules" can be reversed if the offeror and offeree are reversed. y A buyer is bound by terms of a contract enclosed in a box if the shop is the offeror. y The terms of an agreement aren't enforced merely because a buyer chooses to retain a product. y A forum selection clause in a non-commercial contract must allow a consumer reasonable time to reject a contract without incurring disproportionate penalties. y A consumer must be given reasonably obvious notice of existence of contract terms, and must show unambiguous manifestations of assent to those terms. Battle of the Forms - UCC 2-207, commercial goods contracts only y Both parties are commercial o Accepting a contract when two forms acts as an acceptance, unless either of the forms makes acceptance conditional on assent to a term. o Additional terms are considered proposals that automatically become part of the contract unless: y They limit acceptance to terms of the offer y They materially alter the proposal y Objection to the terms are given within a reasonable time after receipt of proposal o Conduct by both parties which recognizes a contract is enough to establish a contract, even if the writings don't. y The terms of those contract consist of the terms in the writings that do agree. The court uses gap fillers to fill in the rest of the terms.

o Not last shot rule: Conflicting terms are discarded and gaps filled by the court. One party is a consumer o Extra provisions in an invoice are treated as proposals which must be accepted.

Preliminary and Incomplete Agreements y Distinguishing between binding and non-binding preliminary agreements depends on: o Whether there has been an express reservation not to be bound in the absence of writing. o Whether partial performance has occurred. o Whether all of the key terms have been agreed upon. o Whether the agreement is a type of contract usually committed to writing. y A contract is invalid if o There is no price or price mechanism (reasonable and in good faith) attached. o No duration is set out. o If a court cannot determine with reasonable certainty as to what each party promised to do. y Letters of intent are unenforceable because they are agreements to agree. The Statute of Frauds - Certain types of contracts are required by law to be in writing, and if they're not they cannot be enforced. y Is a contract within the statute of frauds? o (M)arriage (prenups between spouses or a spouse and parent) o (Y)ear (contracts that will take more than a year to perform, and specifically says so) o (L)and o (E)xecutor (of a will) o (G)oods (more than $5,000, or $500 in old restatement) o (S)urety (promise to ensure responsibility for debt) y Requirements: o Writing (includes e-mails) y Documents may be combined as long as they're the same subject matter o Signature y If combined, only one document needs a signature. E-mail header is valid, or any other symbol made to authenticate a signer. o Intent to Contract y All the terms need not be contained and terms may even be stated erroneously, as long as the writings show intent to contract.  Exception: If quantity cannot be determined, no contract. If it reflects a quantity lower than agreed upon, the contract can only be enforced up to the quantity shown. y Exceptions o Partial performance: Most commonly applied to sales of land, if partial performance caused by the contract occurs. o Merchant: One merchant send a writing sufficient to satisfy SOF, and the other merchant has reason to know of the writing and does not object within 10 days, a contract exists. Consideration y Anything of value promised to another party can be consideration (including a waiver of a legal right, something bargained for by a company in a contest, or good faith forbearance of prosecution). Therefore courts will usually not inquire into the adequacy of consideration unless it is so inadequate as to shock the conscience. o Exception: Preexisting Duty Rule: If the other party already has a legal obligation to render something. o Exception: Past consideration cannot be bargained for. y Bargained for exchange test: Does the exchange induce action on part of the promisee? If so, consideration exists. y An oral promise of a donation may not be enforced without consideration, though there may be reliance damages. y A moral obligation is sufficient consideration where the promisor has received a material benefit.

Policy argument: Judges often use consideration to disqualify contracts. They will tell a story in a way no consideration exists. So, ask if a case is fair, if it makes sense, then it will be easier to see whether or not consideration exists. Illusory Promise: A promise that courts consider to have no legal significance for purposes of consideration. Four basic types of illusory promises: o Satisfaction clauses that allow a promisee to reject for any reason. A satisfaction clause can avoid being considered illusory if: y Condition calls for satisfaction as to quality, fitness, or mechanical utility: A reasonable person standard is used. y Condition calls for satisfaction as to fancy, taste, or judgment, it must be determined that a promisor has said he is not satisfied in good faith. o Contract where terms can be changed at any time. The case in class made an arbitration clause invalid because the hand book had a term where it could be changed at any time. Consideration may be implied.

Contract Modification y Common Law o A contract modification must be supported by new consideration. y Exception: Supervening Difficulties Rule: Events following the formation a contract create a difficulty not anticipated during creation. The rule must satisfy the following:  Performance is subject to difficulties not contemplated.  The party benefiting from modification is not taking advantage.  The change in performance must be reasonable and fair. o For a partially performance contract modification to be binding (RS 89), it must y Relate to a contract that has not been fully performed by either side. y Be precipitated by unanticipated circumstances y Be fair and equitable y UCC 2-209 o An agreement to modify needs no consideration. o An agreement that excludes modification except by signed writing needs a signed writing. o The requirements of the statute of frauds must be satisfied. Promissory Estoppel: A promise which is (1) clear and unambiguous, (2) expectation that the promise will induce reliance, (3) was relied upon (either by the promisee or third party), (4) to his or her detriment. y Promissory estoppel can be used as a substitute for consideration, which means where there is consideration, there is usually no promissory estoppel. y If a promise would have been under the statute of frauds, there is no promissory estoppel claim upon reliance unless the injustice was great and unconscionable. Unjust Enrichment/Restitution: Unjust enrichment is completely outside of contract, therefore there are no contract concerns like promise, consideration, etc. y If a benefit moves from party A to party B, and we believe it is unjust for B to retain the benefit, then A may have a claim for unjust enrichment. o Exception: Volunteers generally have no right to unjust enrichment, unless payment is made under compulsion of a moral or familial obligation. Fraud
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To state a claim for fraudulent misrepresentation, it must be shown that the defendant: 1. Made a factual representation 2. Which was untrue 3. And the defendant knew it was untrue or didn't care whether it was true or not 4. And the misrepresentation was made with the intent to cause another to act 5. The plaintiff believe the statement to be true and relied on it to his detriment.

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A fraudulent misrepresentation may be (1) an express statement, (2) a deliberate concealment of fact, or (3) a failure to disclose. Action taken to prevent someone from learning of a fact is the same as saying the fact doesn't exist. If a party's manifestation of assent is induced by either a fraudulent or material misrepresentation, the contract is voidable by the aggrieved party. o If a contract is voided, the general rule is that each party is entitled to restitution of any benefits conferred to the other party at time of avoidance.

Misrepresentation and Duress y A threat is improper and the resulting contract may be voidable under duress when: o What is threatened is a crime or a tort o A criminal prosecution is threatened o Use of a civil process is made in bad faith o A threat is made to renege on a contract o What is threatened is a use of power for illegitimate ends y Promises extorted by violence of threat of violence are not enforceable. y Economic duress may also make a contract voidable unless a party is also unable to obtain goods from another source. y A defense of duress may be allowed if the duress is caused by a third party and the contracting party knew or had reason to know the victim was improperly induced to enter a contract. Undue Influence: Allows the victim to avoid the contract. y Applicable when the other party is particularly vulnerable to the persuasion of the other party (or 3rd party) due to a relationship of submissiveness, dependence, or trust. o Exception: A court will not find undue influence when the allegedly influenced party is strong willed and the alleged influencer was acting in good faith. Unconscionability: Gives the power to the court to refuse to enforce the contract, remove the term, or limit application of the term. y Gives power to courts in situations with unfair bargaining which leads to unfair terms, and it would offend the conscience of the court to enforce it. y There are two types of unconscionability: o Procedural Unconscionability - Focuses on formation of the contract. y Contract of Adhesion: One party has superior bargaining power and can dictate contract terms. y Unfair Surprise: A contract term is not expected by the party being asked to agree to it. o Substantive Unconscionability - Relates to terms of the contract. y To find unconscionability, courts usually need showing of both, but may tip the scales (even completely) in either direction if one type of unconscionability is shown emphatically or is particularly egregious. Illegality and Public Policy: Courts will not enforce contracts to commit a crime o Exception: If parties are not equally culpable, a court may choose to enforce a contract. Incapacity: Someone who is an infant, mentally incapacitated, or intoxicated has no capacity to contract. y Infancy o An infant contractor may enforce a contract within a reasonable time after reaching the age of majority, or it may be considered enforce if he continues to receive benefits from the contract or if he delays in affirming. y Policy: Discourage people from contracting with the underage. o When a contract is for necessaries, while the contract is not enforceable, the major may have an unjust enrichment claim. o A minor who of legal employment age and in an employment contract does not fall under the minor rule. o Parents have the power to contract on behalf of their major parents. y Mental Incapacity o The court takes into account the degree and seriousness of mental incompetence at the time of contracting.

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Most courts treat incapacity as rendering a contract void, not voidable. If a mentally incompetent person recovers capacity after contracting, she may ratify it.

Standard Forms, Gap Fillers, and Good Faith - The UCC may be used to fill a gap in a contract. y Reasonable Expectations Doctrine: When there is unequal bargaining power between parties a contract will be read taking into account the reasonable expectations of the unequal party. y Implied Covenant of Good Faith and Fair Dealing: A presumption that parties will deal with each other honestly, fairly, and in good faith, so as not to destroy the rights of the other party to receive benefits of a contract (for example if one of the parties tries to use a technical excuse for breaching). Parol Evidence Rule y Common Law o Prevents a party to a written contract from presenting outside evidence that contradicts or adds to a contract that appears valid, final, and complete on its face (fully integrated). o Two ways to determine integration: y 4 Corners Analysis: Looks to the "4 corners" of the document and nowhere else. y Contextual Analysis: Looks to the credibility of outside evidence. o Merger Clause: A statement that claims a contract to be complete and final. Typically enforced by courts. y Exception: When forms are exchanged, a merger clause obviously can't be valid. o Parol evidence is only allowed to clear up an ambiguous contract or to provide proof of fraud. y UCC o Does not allow any evidence that contradicts an integrated contract. o Allows trade terms to supplement a non-integrated contract. Misunderstanding: Arises when parties attach materially different meanings to a term of a contract. If this happens, a court will decide there is no meeting of the minds and therefore no contract. o Exception: If just one party misunderstands, does not apply if because of that party's fault, his understanding is less reasonable than that of the other party. Mistake: Arises when one or both parties mistakenly assumes a state of affairs exists. y Mutual Mistake: Mutual mistake is grounds for voiding a contract when (1) the mistake relates to facts in existence at the time of contracting, (2) the mistake is shared, (3) the contract was made on a mistaken assumption, (4) the mistake has a material effect on the parties' performances, (5) the complaining party does not bear the risk of mistake. o A party may bear risk of mistake if (1) the risk is allocated by agreement, (2) he has limited knowledge when contracting, or (3) the court reasonably allocates the risk of mistake to him. o Remember: The Wood and Sherwood item being turned over being considered in mistake allocation. o A court may rescind a contract if it is made under a mutual misapprehension of the law. y Unilateral Mistake: In the case of a unilateral mistake many of the elements are the same, however the court will balance the non-complaining party's expectations against the inequity of enforcing the contract on the complaining party. y Mistake in Expression: Occurs when a final documents signed by both parties does not express what the parties intended (for example, contains a typo). In this case, the court usually allows parties to reform. Changed Circumstances: Mistake occurs while contracting, changed circumstances after. y Impracticability/Impossibility: Performance becomes impossible because (1) an event had occurred (2) that neither party assumed would occur (3) the event was the fault of neither party and (4) there is no allocation of risk in the contract. o Note: There is a different between something that literally is impossible to do and something a party says they can't do. y Frustration of Purpose: Performance is possible, but there's no point (restatement only). Has the same elements as impossibility. The party to whom frustration of purpose occurs bears the risk unless there is no harm to the other party (usually money lost).

Conditions - An event which must occur before a contract is due. y If a condition does not occur, the party who's performance was conditioned on fulfillment is discharged. y Once a party performs a condition to a contract, the contract may no longer be revoked. o Condition Precedent: Condition must be satisfied before performance is due. o Condition Subsequent: A set of promises that are dependent on one another and must be performed simultaneously. o Condition Concurrent: Brings a duty to an end. y There are express conditions and implied conditions. y Use of Conditions o Escape Clause: Allows a party to avoid a contract if a condition is not performed. y Watch for hidden implied conditions in these, like an implied condition for best efforts. o Allows a party's satisfaction to be a condition to acceptance. y Remember, if one party retains unlimited discretion, this is an illusory promise. y Could state a party is satisfied if performance is rendered one way and not if it's rendered another. o State that one performance is conditional on another. y If a contract is silent on the sequence of performance of conditions, a court will usually find that the condition that takes longer to perform must be performed first. Excuse of Conditions y o Waiver: A knowing and voluntary abandonment of a right. Requires consideration unless it is nonmaterial to the contract. May be express of implied (for example by performance). o Estoppel: There may be an estoppel claim if one party says he's going to perform despite nonfulfillment of the condition and the other party relies on that waiver. o Obstructive and uncooperative conduct: Most contracts contain a provision not to do anything to obstruct or hinder a condition, but even if the provision is not express, it is usually applied as an obligation of good faith and fair dealing. Breach of Contract y Total Breach: A breach of a promise plus nonoccurrence of a condition. The non-breaching party is discharged. o NOTE: A CONDITION IS NEVER BREACHED, ONLY A PROMISE. y Partial Breach: A breach of a promise plus substantial performance of a condition. The non-breaching party is still required to perform. y Rectifying Defects: Sometimes a party can avoid committing a total breach by rectifying the defect in performance, and the non-breaching party may be required to give them a chance to do so, either with the time remaining in the contract or a reasonable amount of time. y Relief for Substantial Performance: The non-breaching party may receive relief for the partial performance. This is usually calculated by courts in two ways: 1. The amount by which defective performance has reduced the market value of the item. 2. The cost of rectifying the problem. y Recovery by a Breaching Party o Total Breach: A party may have a claim in unjust enrichment for what was performed. This is usually not calculated by market value but by unjust enrichment of the other party, offset by damages the other party is entitled to. o Substantial Performance: A party can enforce the contract for the full price minus any allowance to the other party for rectifying the defect or for compensation of loss in value of the performance. y Divisibility of a Contract: When the apparent intent of the parties is to make a contract divisible (usually by structure of the contract) the breaching party may argue that the breach relates only to some parts of the contract. UCC Perfect Tender Rule y If goods or tender of delivery fail to conform to a contract in any way, the buyer may reject the whole delivery, accept the whole delivery, or accept part and reject the rest.

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Right to cure: If a buyer rejects goods before the agreed delivery date, the seller has a right to cure by substituting a conforming tender before the expiration of the delivery time, or after the delivery time as long as the cure is timely and appropriate. The seller must let the buyer he is going to cure. Good Faith: If the seller can show that a buyer used the perfect tender rule to avoid an unfavorable contract, the buyer's rejection would not be rightful. Delivery in installments follows the substantial performance doctrine. This allows a buyer to reject a nonconforming installment only if the installment substantially impairs the value of the contract.

Contract Remedies y Expectation Damages: Strives to put a party in the same position they would have been had a contract been completed. The most generous. Courts usually try to obtain this. o If the breach excused the plaintiff's performance, the expenses saved are subtracted from the value of the contract. If the party partially performed, the value is calculated as the contract value minus the value of goods or services actually received and expenses saved. y Reliance Damages: Strives to put a party in the same position they were before the contract came into place. y Restitution Damages: Returns any benefit conferred to the other party. y Measuring Expectation Damages o Substitute Contract: If the injured party enters a substitute contract, the difference between the breached and substitute contract. The substitute contract must be inappropriate (more expensive, different service). o Market Value: The economic value had the contract been performed. o Contract Profit: The difference between what the plaintiff would have received and what it would cost the plaintiff to perform themselves. y Lost Volume Seller: Those who's capacity to sell is virtually limitless. It is not possible to find a replacement contract for a lost volume sale, so the appropriate measure of damages is the full value of the contract. o A lost volume seller has no duty to mitigate damages. y Measuring Partial Performance Expectation Damages: y The cost of completion or repair of a partial performance. y When the cost of completion would be grossly disproportionate to the value of the goods, the better measure would be to the measure in value between what was bargained for and what was performed. Efficient Breach: When a breach is not penalized because there is an advantage for both parties. y Efficient breach cannot occur when the value of the good is immeasurable. y Courts tend not to enforce punitive clauses because they prohibit efficient breach. Limiting Expectation Damages: Balancing the risk of undercompensating the plaintiff against the risk of imposing excessive liability on a defendant. y The Reasonable Certainty Principle: A plaintiff must prove damages with reasonable certainty. y New Business Rule: Contracts are especially skeptical with claims for loss of profit from new businesses. y The Foreseeability Principle: Damages must be foreseeable at the time of contracting of the plaintiff must have told the defendant of special circumstances. y The Mitigation Principle: If a breaching party acts quickly and decisively, she can often avoid negative consequences of a breach. Parties have a "duty to mitigate." Remedies Under the UCC y The aim of the UCC is to provide expectation damages. y The UCC does not allow for consequential damages, except as provided in the UCC or other law. y Buyer's Remedies y Specific performance is rare and may be ordered when an item is unique. y When the seller does not deliver or the buyer rightfully rejects, the buyer may: y Make a reasonable substitute purchase and recover the difference between the cover and the contract price, plus any extra cost incurred in obtaining the substitute, minus any money saved. y Recover the market price minus the cost of the contract, plus extra costs, minus money saved.

Market price is calculated as of the place of tender or in the case of reject after arrival, the place of rejection. y When a buyer accepts deficient performance, he may collect for deficient performance. y Damages are calculated as the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had had there not been deficient performance, including any incidental or consequential damages. Seller's Remedies y If the buyer doesn't pay, the seller is entitled to the contract price. y If the buyer wrongfully revokes or rejects, the duty of the seller to deliver disappears, and the seller is usually entitled to the contract price minus the value of the goods, may sell the object to someone else and recover the difference between the two, or may just cancel the contract (or a combination). y If a seller enters a substitute contract, manufacturing costs are deducted as costs saved and fixed costs are not taken in account (lighting a factory).
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Reliance Damages As An Alternative to Expectation Damages y Used if expectation damages cannot be recovered (for example not reasonably foreseeable). y Includes expenditures made in preparation for performance or actual performance, minus any loss the injured party would have incurred by performing. y Reliance damages must (1) be established with reasonable certainty, (2) be within reasonable contemplation of the parties, and (3) if they were reasonably avoidable, not recoverable. Restitution As An Alternative to Expectation Damages y Requires the breaching party to transfer the damages back to the non-breaching party. y Value for expectation damages is measures either as (1) the market value or (2) extent to which a party has been enriched. y If the aggrieved party has performed all of their duties under the contract, and the only performance left is the breaching party's performance, the court will usually not allow restitution damages and just enforce the payment. Agreed Remedies y Liquidated Damages Clause: When parties agree in advance to a dollar value that may approximate damages suffered upon breach. y The amount of damages must be reasonable in light of the anticipated or actual harm caused by the breach. y However, courts will usually enforce these clauses as long as the figures were reasonably chosen, unless they serve to penalize breach or the actual damages are virtually nonexistent. y Damage Caps: Courts may refuse to enforce clauses that place damage caps too low. y Parties may restrict the types of remedies available. Courts will usually enforce these clauses unless the limitation leaves the aggrieved party without a reasonable way to remedy the breach. Specific Performance and Injunctions y These are ONLY available if damages would be inadequate to compensate a plaintiff. y However, sometimes courts will refuse to decree specific performance even if damages are potentially an inadequate remedy for breach (example: cases where the defendant or third party would be burdened. y An injunction may sometimes be granted as an alternative to specific performance, however these are typically an extraordinary remedy because they usually require a court to keep an eye on a person.