Contracts Fall 2013 (Price)

Contract
A promise or set of promises that are legally enforceable (K=O+A+C)
Promise: a commitment to the happenings/non-happenings of a future event
Enforcement: an award of the damages or some other order by a court of law

Determining Mutual Assent

Modern Approach: Examine outward manifestation (objective) of the parties when
parties intentions (subjective) disagree.
Subjective
Personal intentions of the parties
Did the parties believe an offer was made?
Objective
Appearance that a offer was made
Would a reasonable person believe an offer was made?
Guidelines
Subj. intent yes/no for both parties- K valid/K not valid
Subj. intent differs, decision comes from obj. intent
Subj. intent differs, but obj. intent looks like a K- K valid
*only consider objective intent when the subjective intent differs between parties*

Offer
Unambiguous statement that objectively seems to invite offerees unambiguous
acceptance into a K
Features
Offeror is the master of the offer
The offer is the offerors last word before liability attaches after acceptance
Offeror can revoke the offer up until acceptance
Objective Manifestation of Assent
Jokes v Bluffs
Jokes are not offers (no intention of legal consequences)
Bluffs can be offers (intend legal consequences but dont think other party can
meet terms)
Negotiations
Not offers (no legal consequences)
Is: trading offers/counter-offers with no set terms or agreement (price
quotes)
Not: setting and agreeing to terms of an offer (agreeing to a price quote)
Maybe: Determined by the language and conduct used in the deal.
Advertisements
General Rule: ad is not an offer, its a request for an offer
Not binding/Room to change mind (Negotiation)

Specifics not listed in an ad

Exceptions
Definite intent
Is: Objectively/Subjectively looks like an offer is extended (intends legal
consequences if not honored)
Not: No legal consequences if acceptance not completed, mere request
Maybe: Language/appearance of ad determines intent. Is it ambiguous? Was
the offerees intention reasonable based on language/appearance of ad?
Explicit
to terms

Is: Terms of offer are specific: Sell car for $1000 to first buyer
Not: Terms are missing, open to interpretation: Sell car $1000 OBO
Nothing significant open for negotiations
Is: No room to counter-offer (as is)
Not: Room for counter-offer to be considered
Maybe: Language/conduct/appearance- is it reasonable to believe?
Over acceptance counted for
Is: Limited quantity, first come/first serve, first 10 buyers
Not: Selling apples for $0.50- How many apples are available?
Maybe: TV/Newspaper ad that has a large audience and offeror unable to
track performance of offeree

Destroying the Offer

Lapse
Inaction based on context and actual time of offer
After a reasonable amount of time or specified time stated
Is: Offer to buy ice cream at creamery on a hot day lapse after parties has
passed the creamery and not acceptance occurred (reasonable amount of
time).
Not: Offer to tutor on Wednesday revoked on Tuesday (not reasonable and
specific time stated)
Maybe: Was it reasonable based on context/facts if not specified time
Rejection
Offeree declines offer
Rejection is forever, no mind changes
Offerees counter-offers rejects original offer
Ex: Sell car for $1000? Ill give you $950.
Revocation
Gen. Rule: The offeror has control over the offer until acceptance, no binding K
Direct- offeror tells offeree offer is gone
Ex: Offeror vocally tells offeree or e-mails, etc. (comes from offeror)
Indirect- not outright, offeree learns from another source that offer is gone
Liable source and quality information
Is: Offerors agent

Not: Random third-party/ info does not match original deal

Maybe: Ambiguity of credible source/message delivered (Best friend to
offeror)
Death or Incapability of the offeror
Gen. Rule: Offerees power of acceptance ends when offeree/offeror dies or is
deprived of legal capacity to enter proposed K.
Exception: Death does not terminate a K w/ consideration
Ex. Offeror dies after entering into a valid K with offeree. Offeree is able to
receive what ever was promised or a remedy.

Preserving the Offer/Irrevocable

To hold the offer open, make it irrevocable, for a specific period of time--offeror
surrenders right to revoke offer.
Gen. Rule: All offers are revocable, UNLESS the promise of irrevocability is
supported by independent consideration or enforced by statute
Option K - keeps offer open w/ required consideration
Offer irrevocable for a specified period
Valid consideration makes it irrevocable
Is: Consideration in Option K is separate from consideration for underlying
K
Not: Nudum pactum (naked promise)- promise w/o consideration, just an
offer
Differs from a simple offer which can be revoked anytime by offeror before
acceptance

Acceptance
Manifestation of assent to terms of offer made by offeree in a manner invited/required
by offeror
Features
K is formed
Offers cannot be destroyed
No negotiation/counter-offer
Offeree accepts the offer (regardless of K writer)
Ways to Accept- offeree gets to decide if not specified by offeror
Promise
Verbal
Bilateral K
Performance-benefits offeror
Unilateral K
Partial performance- Option K to complete once performance started/no revoke
Is: Offeree starts to repair a roof of offerors house
Not: Preparation to perform is not performance- Offeree makes plans to buy
materials to repair roof. (offer is vulnerable)

Mailbox Rule
Acceptance is complete the moment it is out of the possession of the offeree
(dispatch), except in the case of an option K where acceptance has to be received
by the offeror by the date given.
Note: the risks are allocated on one party
The burden is on the offeror to know that acceptance occurred
Acceptance must be by the equally reliable medium
If the rule does not apply, acceptance is valid on receipt (offeree burden)
Offeree
receives the benefit of the rule if properly address and ordinary

precautions are taken. When this does not happen, offeree gets the benefit if the
acceptance arrives the same time as it would have if it was correctly sent. Then,
the date of acceptance is the date received, not dispatched.
Receipt occurs when mail hits the mailbox or designated place, not when
opened.
Conditions of Acceptance
Language/Context of offer may govern required acceptance
Ex. offer may require written acceptance
Circumstance/Situation offer may govern type of acceptance
Ex. reasonable lapse in time
Unilateral K v Bilateral K
Unilateral- offeror makes promise in exchange for act
No return promise necessary
Vulnerable until acceptance or partial performance (not binding until complete)
Is vulnerable: Offer of $1 to find dog vulnerable until dog delivered.
Not: Delivery of dog when missing dog signs are still posted
Maybe: Missing signs no longer visible and offeree delivers dog OR
partial performance and offeror benefits then revokes (remedy given for part
of job completed)
Acceptance,
consideration, performance are all the same

Bilateral-mutual promises between parties

No vulnerability
Use in cases of doubt
Legal consequences
Deficient Agreements
Interpretation-misunderstanding K term meanings. K not enforceable when we
dont know what its for b/c neither partys story is more objectively reasonable
Vagueness- sloppy syntax
Ex. Shake well before opening
Ambiguity-poor word choice
Ex. light feathers (what does light refer to? Color? Weight?)
Methodology:
Identify language, Reiterate interpretations, Redraft twice for

each party

!
!

 Consideration even a peppercorn will do

Some performance or forbearance or promise of performance or forbearance bargained
for by promisor
Exchange
Bargained for benefit/detriment
Sufficiency (Substance)
Parties bargained for benefit/detriment that is important part of the negotiation
Features
Not feelings of a good deed or a gift
Only 1 acceptable motivation needed
Forbearance/detriment is only credible if asked for by offeror
Both parties do not have to benefit
Exceptions (Not Consideration)
Like for Like; Nominal (Look for uniqueness)
Is nominal: $1 consideration for $500
Not: $1 for antique vase (even a peppercorn will do)
Past events
Is past: Offer to give $100 for medical bill b/c offeree saved offerors life
two weeks ago
Not: Agreeing to save offerors life for $100 and then saving his life
Material
Benefit Exception-Moral obligation is sufficient consideration to

support a promise to pay when promisor has received a material benefit:

Must be life saving
Promise from victim to life saver
Injustice to not enforce promise
Remedy can be limited and not amount promised
Non-colorable (impossible) claim
Release of colorable claim is invalid when there is no legal obligation
Is colorable: Consideration for buying a house when offeror owns a house.
Not colorable: Consideration for buying a house when there isnt one.
Illusory promises
Promises where one party retains total discretion as to whether to perform
Is: "I promise to perform at your party unless I don't feel like it" (No
obligation)
Not: "I promise to perform at party unless I call you to let you
know" (Obligation to call)
Maybe: "I promise to perform at party unless it is snowing too
hard" (Obligation to perform but interpretation of too hard is left open)
Pre-Existing Legal Duty Rule (PELDR)
An agreement modifying a K is not supported by consideration if one of the parties
to the agreement does or promises to do something that he is legally obligated to do
or refrains or promises to refrain from doing something something he is not legally
privileged to do.

Common Law Exceptions (Elements to Modify K)

Voluntary agreement by both parties
K not fully performed on both sides
Unanticipated circumstances, not reasonably anticipated at start of K
Fair and equitable K
UCC Exceptions (Elements to Modify K)
Good faith w/o extortion
Moral Obligation
Sufficient consideration for promise is limited to cases where at some time or
other a good/valuable consideration existed:
debts barred by statute of limitations
debts incurred by infants, or
debts of bankrupts
Reliance/Promissory Estoppel
A promise can be enforced even though it was given without consideration if the
promisee has reasonably relied on the promise to her detriment.
Expectation & Reliance Damages
expectation- amount expected from a K if it is performed completely
reliance-no K but party reasonably relied on K to detriment-usually doesnt hurt
other party
Requirements:
Promise
Promisor reasonably expects that promisee will rely on promise
Reliance by promisee
Injustice should receive at least a limited remedy

Defenses/Reasons Not to Enforce K

Statutes of Fraud
Certain kinds of Ks need to be written. If SoF is successful, K is voidable at option
of contesting party.
Agreements covered: MY LEGS
Marriage- Promises made in consideration of marriage
Year- K not performed and completed w/in one year per its terms
Sufficient if can be completed in theory, even if unrealistic
Land- Transfer of real estate
Executor- Administrator/ Estate law- pays debt of estate from executors private
funds
Goods of $500 or more (UCC)
Suretyship- Promises to pay debts of another person
Requirements
Identify subject of K
Essential terms of the agreement
Signature of both parties (UCC only needs signature of contesting party)

Exceptions: SWAPP
Specially manufactured goods- no writing needed
Written merchants confirmation if w/in a reasonable amount of time
merchant: expert w/ respect to something or regular seller of goods w/
specialized knowledge
has to objected to w/in 10days
Admission of K under oath
Partial performance- deal granted to amount already performed
Promissory estoppel-agreement fails SoF but no remedy would be unjust
Requirements: promise, intended to induce reliance, actual reliance, and
injustice w/out a limited remedy
Misrepresentation
Rule: A party is responsible for a fraudulent misstatement of fact whether he
intended to misrepresent the facts or not.
Determination
Specificity of misstatement
Repetition of misstatement
Difference in expertise
Intent
Law suit is for rescission (parties return what they received)
If no misrepresentation, then look for nondisclosure
Nondisclosure
Rule: No duty to disclose
Exceptions
Special duties/relationships
State disclosure laws
Concealment
Rule: If a party to a K of sale conceals/suppresses any material fact which he is in
good faith bound to disclose, the silence is fraudulent.
Lack of Capacity
Rule: K is voidable by minor until minor reaches majority age and then for a
reasonable amount of time afterwards
Bright Line Rule: It doesn't matter that the minor led the other party to reasonably
believe that he was older
Undue Influence
Undue influence occurs when there is persuasion that overcomes the will (high
pressure by a dominant person) and takes an unfair advantage of anothers weakness.
Tests
Objective: inappropriate manner of gaining assent
Subjective: overborne will
Odorizzi Factors
Discussion at unusual or inappropriate time
Consummation of transaction in unusual place

Insistence that deal occurs immediately

Extreme emphasis on consequences of delay
Use of multiple persuaders against a single party
No advisors to the weak party
Statements of no time to consult others/professionals
Unconscionability
The court tries to balance belief in freedom of K w/ reality that people get taken
advantage of. (No clear legal standard)
Against public policy
Mistake
A mistake is a belief that is not in accord with the facts
Unilateral/Mutual Mistake Rule: Cancellation is available if assent founded upon
mistake as to a material fact.
Test for Unilateral/Mutual Mistake
Mistake
At time K is being formed
As to a basic assumption on which K is formed
No risk of loss allocated to party seeking relief
Voidable by adversely affected party
Exception to Mutual Mistake: A party bears the risk when
Allocated by agreement, OR
Party knows, at time K is formed, that she has only limited knowledge and treats
it as sufficient, OR
Risk is allocated by the court
Exception to Unilateral Mistake: A party bears the risk when
Allocated by a agreement, OR
Party knows, at time K is formed, that she has only limited knowledge and treats
it as sufficient, OR
Risk is allocated by the court, AND
Effect of mistake is unconscionable
Other party knew mistake or caused it
Mistake as to quality or value are not grounds for cancellation
Is the mistake so great that the K is based on something different?
Ex: A fertile cow amounts to a difference in quality/value compared to a
sterile cow.
Interpretation/Terms of the Deal
Order of consideration: intent of parties, express terms, c.o.performance,
c.o.dealing, then trade usage
Trade Customs and Usage
Course of performance- repeated performance between parties in same transaction
Course of dealing- repeated performance between parties in prior transactions
Trade usage- objective standard across countries for practice/method expectations

To be binding, a trade usage must be sufficiently general so that the parties must
have contracted with reference to it.
Parol Evidence Rule
Includes only evidence prior to K
Steps:
Look at terms in written K
Extrinsic evidence to be introduced
Is K integrated (signed w/ at least one term)
Is it fully or partially integrated
4 Corners- written K and merger clauses (not dispositive, needs to be
definite and explicit)
RST- naturally left out
UCC- certainly included
General Rules
Must give effect to all K language
Court reluctant to find interpretation that would other language meaningless
Court reluctant to find interpretation that would cause inconsistency (diff.
customs and usages)
Ambiguity- capable of more than one meaning in context of agreement
Can always introduce evidence to explain an ambiguity, not to contradict
Implied Terms
Implied terms occur when it is clear that parties intend a K
Obligation of good faith and fair dealing is implied in every contract
Exclusive Right - best efforts obligation implied (CONSIDERATION)
Specifically point to term in K where obligation was breached

Excuses/Defenses for Breach

Conditions
An event not certain to occur which must occur before performance is due
Ill wash your car tomorrow for $15 if the weather is nice.
The nice weather may or may not occur, but only if it does will I have
perform.
Here, there is a conditional duty: duty to wash only if good weather
Express Condition precedent- Unless and Until
Precise language is required
Forfeiture- loss or nearly loss of all of Ks value to a party
Usually wont imply an express condition when it would result in forfeiture,
UNLESS its occurrence was a material part of the exchange
Modification, Waiver, or Estoppel
Modification Must be mutually agreed upon
Common law requires consideration/ UCC needs no consideration
Cannot be retracted

Waiver- intentional relinquishment of known right

Decided by party owed the duty
Ex. Landlord allows tenant to pay rent on 7th when it is due on 1st.
No consideration needed
Can be retracted until relied upon
Estoppel- reasonable reliance in a waiver that prevents the waiving party from
claiming default based on attempted retraction
A series of waivers lead to a party reasonably believing that the waiver will
happen again
Unanticipated Events
Circumstances change so much that the deal significantly changes; party not liable
for breach
Impracticability
Performance is impossible, illogical, or extremely costly
Event that occurs after K formed
Parties assumed event would not occur
Non-occurrence was basic assumption central to the K
Remedy = Cancellation
Unless- language or circumstances indicate otherwise
Party knew or should have known
Risk was accounted for
Parties agreed on risk bearer
Frustration of Purpose
Event occurs after K formed
Partys principle purpose was substantially frustrated w/o his fault
Object must be the basis of the contract w/o out which the deal makes no
sense
Parties did not assume that event would occur
The non-occurrence was a basic assumption central to the K
Foreseeability is a factor
Remedy = Cancellation
Unless- language or circumstances indicate otherwise
Analyze fairness of who should bear the risk
Exception: Tough Luck Rule- all parties assume a certain amount of risk when
entering into a K
Supervening illegality- when the law changes- works if law changes after K is
made
Impracticability vs. Frustration of Purpose
Ex: Buy tickets to watch a movie
Movie theater burns down: Impracticability
Projector breaks: Frustration of Purpose b/c it is still possible to do other
things in the theater
Anticipatory Repudiation

General Rule: AR requires clear and unequivocal statement of anticipated,

material nonperformance. K termination can occur before performance is due.
A request to modify is not AR
An expression of doubt is not AR
Repudiation
alone gives rise to a claim for damages for total breach

Retraction of repudiation unless

There is reliance by NBP or Election to treat K as breached
The NBP materially changed her position or indicated that repudiation is
considered final
Demands for Assurances when unclear
Encourage sufficient outcome by suing immediately and allowing other
party to mitigate
Limit AR by requesting to modify or allowing retraction w/o reliance or
election
Demand adequate assurance of due performance and suspend performance
until assurance is received; assume repudiation if not assured in a reasonable
amount of time.
Material Breach
Definition: Any failure to perform a K that permits the other party to either force
performance or collect damages due to the breach.
General Rule: only a material breach justifies a NBP in declaring total breach
and ending performance under the K
Rule: Any breach will give rise to a claim for damages.
If it is not a material breach, it is a minor breach
Determination of material breach:
Will NBP be deprived of benefit of K?
Can NBP be compensated adequately through lawsuit for damages?
Will BP suffer forfeiture if material breach is declared by NBP?
Is it likely that BP will cure?
Was the BP acting in bad faith?

Damages
General Rule: Difference between value of what was promised and value of what
was received
Equation: AnB - AnC - AcB + AcC = Damages
Cost of Repair (COR) vs. Diminution of Value (DIV)
Rule: Give COR (amount needed to fix breach) unless grossly disproportionate
to DIV (diff. of expected vs. received)
Tests for COR/DIV
Accidental breach/No aesthetics-DIV
Accidental/Aesthetics-COR
Non-accidental/No aesthetics-DIV
Non-accidental/Aesthetics-???

 Consequential Damages
Reasonably foreseeable
Reasonably calculable
Liquidated Damages
Specification of what damages will be
No punitive damages or extreme damages beyond actual loss
If difficult to show proof of loss, liquidated damages is more likely to be allowed
If no liquidated damages granted, then grant actual damages
If actual damages higher than liquidated, Court will grant lower liquidated damages
Limitations
Mitigation- we assume that the injured party mitigates to avoid loss, rewarded as if
resold
Employment: You do not have to accept inferior employment to mitigate
damages. If you do, then mitigation applies
Foreseeability/Special circumstances (Consequential)- damages reasonably
foreseeable or result of special circumstances known to and implied accepted by
breacher
Ex.: Increase in charge as acceptance of risks
Certainty- amounts provable w/ reasonable certainty
Reliance Interest/Alternative Damages
Expenses occurred in prep of performance or in performance minus any loss that
BP can prove w/ reasonable certainty the NBP would have suffered regardless of
breach