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Contracts 1: Outline Fall 2010 Victoria Vlasis

Unit 1: Intro/Overview of Contracts

1) Exchanges are good. a) If both parties are better off (have increased utility not necessarily a net benefit), then society is better off. b) Criteria of contract law (must meet these three to benefit/increase utility) i) Voluntary (1) Not when there is gun to head or blackmail ii) Parties are Informed (1) Has to be informed to make a good decision (2) Law wont protect when you arent informed but wasnt misrepresented, just didnt know (ex: didnt know it was in poor condition, but seller never said it wasnt) (3) Law will protect when the good was totally misrepresented (show pic of one thing and send another) iii) Doesnt wrongly injure a third party (1) Cant be a hitman contract (2) Contract law deals less with this 3rd criteria than the other two. 2) Contracts a) A contract is a legally enforceable promise. b) Courts assume there was reliance. c) Assent: both parties willing to be bound. 3) Why Do Enforce Promises? a) Exchanges wouldnt stop if they werent enforced b) Parties could still make contemporaneous exchanges. c) Allows for parties to presently bind themselves to make exchanges in the future. d) The law enhances the certainty of promises by making them enforceable. 4) Certainty is good, but we dont imprison promise breakers a) We merely make require them to repay the other contracting party for the injury the breached caused. b) Activity Level Effect i) If we did imprison them, there would be a higher certainty, but fewer people would make promises and they are a benefit to society. ii) Positive Activity Level: If the law causes an increase in the level of activity (more promisemaking) iii) Negative Activity Level: if the law causes a decrease in the level of activity (less promisemaking) 5) Why not enforce all promises? a) It could have a negative activity level effect i) Less people would make a dinner date b/c can get sued for not showing up b) It would create administrative costs/market reasons c) Social and moral forces already provide a sufficient level of certainty. d) Conscience 1

Contracts 1: Outline Fall 2010 Victoria Vlasis 6) Role of Contract Law a) Provides default rules for contracting parties i) If the parties do not like the default rule, they can use their contract to draft out of it. ii) Save time for contracting parties. iii) Default rules will often provide solutions for the issues their contract did not explicitly address. iv) Provides parties assurances that there is something out there to rely on if their contract didnt explicitly address them. v) Determine if a default rule is efficient by asking is most parties would agree to it ex ante. (1) Ex ante: before the fact, when they enter into the contract, not afterwards when it has already become clear that something has happened in the performance of the contract to adversely affect them. b) Also has mandatory rules i) Rules which the parties may NOT draft out of. ii) Determine if it is mandatory by asking if the benefits of the policy goal we are trying to achieve through the rule outweighs the costs of preventing the parties from agreeing to something else. 7) Types of Contracts a) Express Contract i) Made in express oral or written terms. Takes many forms. ii) b) Implied Contract i) Informalcould just be a nod of the head. ii) Traditional Elements (1) requested to perform work (2) expected compensation for services (3) knew or should have known that expected compensation. iii) No legal difference between express and implied contracts, both based on intentions of the parties to enter into a voluntary obligation. iv) Example: wave waitress for another round of drinks, implied you get drinks for money. c) Quasi Contract (Implied in Law) i) Based on the law of restitution seeks to prevent unjust enrichment and doesnt depend upon voluntary consent. ii) Based on the value of the benefit conferred on the party who was enriched (above 2 based on injured parties expectations. (1) A B. There is a benefit, it was appreciated by the one receiving it (B). Party A now wants B to pay for the benefit. Inequitable, unjust to allow B to keep the benefit w/o paying A. (2) If A acted gratuitously (gave gift) then B wouldnt have to pay. (3) If A acted officiously (provided unwanted services, meddling), then B can keep it without having to pay A. (4) Ex: A jumped in and saved B from drowning. 2

Contracts 1: Outline Fall 2010 Victoria Vlasis (a) B got a benefit (not dead); A wasnt acting officiously, but was gratuitous, so A cant recover., witnesses, etc. (5) Ex: Doctor sees someone passed out and helps. Not officious or gratuitous since he is a doctor he will expect $$ for services. B got benefit (helped)so has to pay doctor (doctor can recover, it would be unjust to allow B to not pay). iii) What you recover under these contracts is the value of the benefit. (1) Requires fact finding d) Bilateral Contract i) Involves two promises ii) Formed through an exchange of promises iii) Ill do this, but you must do this in return e) Unilateral Contract i) Involves one promise ii) One party makes an offer that can only be accepted by performance iii) Contract isnt regarded as formed until completion of the requested performance. iv) Ex: Reward: $500 reward for the finding of my Kitty Smokey. v) Rewards/incentives/commission f) The Restatement 2d abandons the bilateral/unilateral terminology. 8) Sources of Contract Law a) Common Law i) Applies to services ii) Service contracts, real estate contracts, and everything not covered by the UCC or UN CISG iii) Under common law, silence isnt acceptance b) Uniform Commercial Code (UCC) Article II i) Applies to the sale of goods ii) Goods are all things moveable (1) A good that hasnt been manufactured yet is NOT moveablebut becomes so when it is made. iii) UCC 2-105(1) is the definition of goods iv) Ex: dog, hot dogs, bowling balls (goods); valuable ticket stub (good) v) Concert ticket (not a goodits a license to a seat); computer software (not a good) c) UN CISG i) Applies to the international sale of goods ii) Doesnt apply to consumer transactions iii) Must be between parties of different countries d) These rules sometimes differ, so important to know when to use which. 9) Contract Formation (Big Picture) a) Assent b) Consideration or Promissory Estoppel c) Definiteness (reasonably certain material terms) d) Defenses i) Statute of Frauds 3

Contracts 1: Outline Fall 2010 Victoria Vlasis ii) Incapacity, duress, undue influence, misrepresentation or fraud, illegal or against public policy, unconscionability 10) Hybrid Contract a) Contract for both goods and services b) Primary Purpose Test i) What is the primary purpose of the contract? ii) Which has the higher costs? iii) Do the services change the nature of the good? (1) Yesthen for services; Nothen for goods (2) Ex: contract to do a driveway for you. The services change the good b/c it comes as powder and then mixed with water and makes the concrete (3) Is it service-intensive? (a) Ex: installation of a water heater iv) Delivery doesnt count as a service c) On exam, when there is a hybrid contract, answer both sides goods and services, not just what you think!!

Unit 2: Mutual Assent

1) Mutual Assent a) Assent: the promisor expresses a willingness to be bound by her promise. i) Bilateral contract: both sides must express willingness to be bound ii) Unilateral Contract: only the promisor needs to express a willingness to be bound b) Often manifested through offer and acceptance i) If one party makes an offer, there will be a legally enforceable contract at the moment the offeree accepts the offer. (1) Isnt necessary for them to use the terms offer and acceptance 2) Assent Communicationshave legal consequences a) Offer: offeror will be legally bound upon acceptance by offeree b) Acceptance: When the offeree accepts the offer, we have a legally binding contract c) Rejection: when offeree rejects an offer, she kills it (can no longer accept it) d) Counteroffer: When offeree responds to an offer with a counteroffer, she is rejecting the offer and making a new offer e) Revocation: When an offeror revokes her offer, the offeree no longer has the power to accept the offer (offeror killed it) f) Come communications have no legal consequences (dont manifest assent) i) Invitations: I am accepting offers on my Celica ii) Queries: Would you take $4000 for your Celica iii) Expressions of Intent: I want to sell my car for $2000 3) Objective Approach to Assent 4

Contracts 1: Outline Fall 2010 Victoria Vlasis a) In determining whether a party assents to a contract, you determine if there was a manifestation of assent b) Doesnt matter if someone subjectively wanted to be bound, only her objective actions and communications c) Standard: Whether a reasonable person in similar circumstances would consider it to be a manifestation of assent 4) The Offer a) Manifestation of willingness to be bound immediately upon offerees assent 5) The Acceptance a) A manifestation of willingness to be bound to the terms of an offer i) If it has a condition (yes Ill buy it if you throw in your hammock too) then NOT acceptance, that is a counteroffer (called qualified acceptance) ii) A grumbling acceptance IS acceptance (1) Ex: Yes Ill buy those sunglasses for $50, but I think they are only worth $30 b) Must occur while the offer is still effective i) Is not acceptance if offer is no longer effective (1) If the offer has expired by its terms (this offer open for 2 months) (2) The passage of reasonable time (a) When offer has no express ending, its open for reasonable time, not forever (b) Instantaneous communications (phone, face-to-face) expire when conversation ends (c) Revocationofferor can revoke at any time before it is accepted (d) Rejectionofferee kills the offer by rejecting it (e) Counterofferoperates the same as rejection, kills the offer (i) Offeree rejects offer and makes a new offer (f) Death/Incapacity of offeror (or offeree)the offer dies when the offeror dies or becomes incapacitated before acceptance ii) If two people send offers to each other with the same terms (crossed offers) there is NO contract c) The offeree is the only person who can accept an offer i) In reward situations there are many offerees ii) An offeror may expressly or implicitly direct an offer to a class of offerees and not an individual offeree. Any person in that class may accept the offer. 6) Manner of Acceptance a) Accepted by Promise or Performance (modern view) i) Promise: seeking to form a bilateral contract ii) Performance: seeking to form a unilateral contract b) The older common law approach is to classify offer as i) Offer seeking to form bilateral contract, or ii) Offer seeking to form unilateral contract c) For both approaches, you need to determine whether the offer is seeking a return promise ot return performance from the offeree 5

Contracts 1: Outline Fall 2010 Victoria Vlasis i) If offeror seeking promise, cant accept with performance ii) If offeror seeking performance, cant accept with promise d) The offeror controls the manner of acceptance (the offeror is the master of the offer) i) Look at express language of offer to determine what its seeking ii) Would a reasonable person understand the offer to require acceptance by promise/performance/both? e) If offer seeking performance, then offerees performance binds the offer i) Offeree must have knowledge of offer (1) Ex: cant find a kitten and return it to owner, then see reward signs and try to claim the reward ii) Offerees motives for performing are irrelevant iii) Offeree is never bound iv) Only offerees full performance is acceptance (1) Part performance or return promise NOT acceptance (2) But, offeror cant revoke offer once offeree has begun performance v) Offeror has to expressly require performance (1) Exception: reward offer, contest, bonus/incentive contract, insurance contract, guarantor contract, and employment manual vi) Notice is unnecessary unless offeree has reason to know that offeror will not learn of performance within reasonable time f) If offer seeks promise only then only a return promise is acceptance and acceptance binds both the offeror and the offeree i) Offeree must provide notice to the offeror g) If an offer is ambiguous in manner of acceptance it is seeking i) Offeree may accept in any reasonable manner (promise or performance) ii) Offerees acceptance by promise means both offeror and offeree are bound iii) Offerees beginning of performance has the same effect as acceptance by promiseboth the offeror and offeree are bound by it. (1) Preparation to perform is NOT acceptance 7) Silence is NOT acceptance unless both parties agree to it beforehand 8) Medium/Means of Acceptance a) Offeror is the master of the offer i) Can require acceptance by any means desired ii) If offeror does not require a specific medium of acceptance, the offeree may accept by any medium that is reasonable under the circumstances (1) Relevant factors: speed, reliability, etc. (2) It is usually reasonable for the offeree to use the same medium to communicate acceptance that the offeror used to transmit the offer 9) Mirror-Image Rule a) Common lawRule

Contracts 1: Outline Fall 2010 Victoria Vlasis b) A putative acceptance does not operate as an acceptance unless it is the mirror image of the offer. If the acceptance has terms that are different from or additional to the terms of the offer, it is not an acceptance, but a counteroffer. 10) Last-Shot Rule a) Common Law Rule b) If an acceptance by the offeree contains additional or different terms and then the offeror performs her promise, she will be bound by the new terms. i) The acceptance was actually a counteroffer, so when the offeror performed in response to the counteroffer, she was manifesting her assent to the terms. ii) Whoever gets the last-shot (last communication before performance) will get the terms she wants 11) The UCC changes the mirror image rule and last-shot rule for transactions involving goods. 12) Mailbox Rule a) Acceptance is effective upon dispatch i) Dispatch=removal from immediate control ii) Must be reasonable medium and proper dispatch b) Offer, revocation, rejection, and counteroffer are effective upon receipt c) Offeree sends acceptance, then rejection i) A sends offer B sends acceptance B sends rejection A receives acceptance A receives rejection (1) Contract, Mailbox Rule applies ii) A sends offer B sends acceptance B sends rejection A receives rejection and detrimentally relies on it A receives acceptance (1) No contract, mailbox rule exception; Gulinello says it is offerors choice d) Offeree sends rejection, then acceptance i) A sends offer B sends rejection B sends acceptance A receives rejection A receives acceptance (1) No contract, mailbox rule doesnt apply, whichever received first controls ii) A sends offer B sends rejection B sends acceptance A receives acceptance A receives rejection (1) Contract, mailbox rule does not apply, whichever is received first controls e) Offeror sends offer, then revocation i) A sends offer A sends revocation B sends acceptance B receives revocation (1) Contract, mailbox rule applies, revocation effective only upon receipt ii) A sends offer A sends revocation B receives revocation B sends acceptance (1) No contract, receipt of revocation terminates power of acceptance 7

Contracts 1: Outline Fall 2010 Victoria Vlasis Dispatch AR RA RA Receipt RA AR RA Contract/Mailbox Rule? offerors choice acceptance effective, contract formed rejection effective

In the last two, whichever offeror received first will become effective

Unit 3: Mutual Assent II

1) Advertisements, price quotations, catalogs, etc. a) Advertisements are not offers b) They are invitations to negotiate rather than offers to sell i) Dont even have to sell it at the quoted price ii) It is unreasonable to believe that the person who disseminated the ad was wiling to expose itself to the potentially unlimited liability that would result if the ad were treated as an offer c) An advertisement CAN operate as an offer if it is sufficiently limited to avoid the problem of unlimited liability by i) Who (like who the ad is for) ii) Quantity (number of items selling) iii) Quantity per person (only 2 per person) (1) Ex: first five person to arrive at my store Saturday April 3, 2011 can purchase only one of five of these Samsung 52 flatscreens for $550 (2) Also, true unilateral contracts are offers (such as ads for rewards and prizes) iv) Ads of rewards and prizes are limited because the nature of the reward offer in inherently susceptible to acceptance by only one person d) Some modern decisions have treated ads as offers if they would lead a reasonable person to believe that the proposed deal was available to everyone e) Info contained in ad might provide basis for claim of breach of warranty i) Ex: claim Celica gets 40mpg in an ad, and in reality it gets 35mpg f) Puffing is expected and permitted i) good shape or highest quality ii) Attracts customers and encourages commerce g) Warranty is affirmation of fact or promise on description of the goods 2) Auctions a) With Reserve i) The auctioneer (sellers agent) has a right to withdraw the property from the auction at any time before the completion of the sale to a bidder ii) May terminate the auction without selling the goods, regardless of how many bids have been made or how high it has gone 8

Contracts 1: Outline Fall 2010 Victoria Vlasis (1) Auctioneers acts of displaying property are invitation to bidders to make offers (2) No contract for the sale of property until auctioneer announces sale is complete b) Without Reserve i) Once the auctioneer calls for bids on property, it cannot be withdrawn unless no qualified bid is made within a reasonable time ii) Advertising the property to be put up is NOT a binding commitment to sell iii) Once the property is put up, the auctioneer has made an irrevocable offer to sell the property to the highest bidder, subject only to within a reasonable time iv) Bidders are expressing their acceptances. (1) Each acceptance concludes a contract, subject only to the condition that no higher qualified bid is made (2) Each new bid operate to discharge the contract created by an earlier bid (3) In no higher bid is made, auctioneer obligated to sell it to highest bidder, who is obligated to buy it for the price bid. v) A bidder may withdraw his/her bid any time before the auctioneers conclusion of the sale c) If an auction doesnt expressly provide notice of which type it is, it is presumed to be with reserve. d) Offeror/Offeree in Auctions i) With Reserve (1) Bidders are offerors (since auctioneer invites offers) (2) Seller (through the auctioneer) is offeree ii) Without Reserve (1) Seller (through auctioneer) is the offeror (2) Bidders are offerees e) Bidders can revoke bids in both types of auctions at any time prior to the announcement of the conclusion of the sale f) Retraction of bid does NOT reinstate any previous bid i) Someone must make a new bid or the auction will fail g) Sellers cannot bid unless notify the bidders beforehand i) If the seller bids and it is not disclosed to the other bidders, the buyer may at his option avoid the sale or take the goods of the last good-faith bid prior to completion of the sale (usually the one below his) 3) Intent to Memorialize a) Factors courts consider in the objective approach to contracts i) Whether the agreement was one that is usually reduced to written form (language of preliminary agreement) ii) The extent of the details remaining to be resolved (existence of open terms) iii) Overall size of the transaction (circumstances) iv) Whether the parties had begun preparations before the written version of their agreement was executed (partial performance)

Contracts 1: Outline Fall 2010 Victoria Vlasis v) Whether the negotiations between the parties included discussions about the necessity of memorializing the agreement before the parties would be bound (necessity/custom of putting it in final form) b) Letters of Intent and MOU courts sometimes take middle ground approach i) If it is subject to a later binding agreementneeds to be in writing (1) If either party knows/thinks other party doesnt regard it as incomplete and no obligations until it is down in writing, preliminary negotiations are not a contract ii) If it is subject to a later definitive agreementdoesnt need to be in writing (1) When parties have definitely agreed that they will do so, and the final writing should contain these provisions and no others, they have concluded the contract 4) UCC 2-207 (Battle of the Forms) a) Changes mirror-image rule and last-shot rule for the SALE OF GOODS b) Usually refers to the following situation i) Buyer sends an order (offer) to purchase goods from seller. Buyer is merchant and she uses her own order form that was important terms in fine print at the bottom/on back. ii) Seller replies with acknowledgment (acceptance). Seller is merchant, she uses own acknowledgment form that has important terms in fine print at bottom/on back. iii) When buyer receives sellers acknowledgment, she doesnt read the fine print so never protests on Sellers acknowledgment. Seller sends goods. Buyer accepts goods. c) 2-207 (1) i) If there is a definite and seasonable expression of acceptance it operates as an acceptance even though it contains some terms additional to or different from those offered. ii) When any dickered terms are changed, there is not an acceptance, so no contract (1) Price, quantity, description, delivery terms iii) Variations in preprinted terms dont automatically prevent a contract from being concluded, unless the offerees acceptance is expressly conditional on the offerors assent to the different or additional terms proposed in the offerees response (counteroffer) iv) When a contract is made on the phone then written confirmation has additional/different terms it is an acceptance if sent within reasonable time d) If the acceptance operates as a legal acceptance then go to (2) e) If the acceptance doesnt operate as a legal acceptance, go to (3) f) 2-207 (2) i) Presumption is that any additional terms contained in the offerees response are mere proposals for addition to their contract ii) Between merchants the additional terms may be added to the contract unless (1) The offer expressly limits acceptance to the terms of the offer (2) They materially alter it (3) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received iii) Even b/w merchants, the offerees new and conflicting terms rarely added b/c they must be minor and not objected to by the other part in any way.


Contracts 1: Outline Fall 2010 Victoria Vlasis iv) Definition of merchant [UCC 2-104(1)]: A person who either deals in goods of the kind or who because of her occupation holds herself out as having knowledge or skill peculiar to the practices of goods involved in the transaction v) If either of the parties isnt a merchant, then it isnt between merchants and any additional terms are proposals g) Materially Altering Terms i) Any new term in an acceptance that materially alters the contract is excluded from the resulting obligation ii) Terms that would result in surprise or hardship if incorporated without express awareness by the other party iii) Examples: warranty disclaimers, arbitration clauses, limited remedy provisions h) 2-207 (3) i) Come here if the acceptance doesnt operate as a legal acceptance ii) When parties perform (delivery and acceptance) despite conflicts in their paperwork that prevented formulation of a contract iii) If the exchange of forms doesnt result in a contract but they performed anyway, it demonstrates that parties entered into an agreement and the terms of that agreement are limited to the terms that match (knockout-rule) 5) Rolling Contracts a) Pay now, terms later i) Courts generally think they are fair. ii) Purchasing the item isnt the contract, but using it/not returning it/clicking I Agree does make it a contract (1) Ex: computer software, tickets for cruise, insurance policy, employment contracts b) UCITA i) Uniform Computer Information Transactions Act ii) Was destined to become Article II of UCC iii) Said consumers were bound to the license agreements once they read them and started using the product, but lots of controversy and criticism so no one endorsed or adopted it.

Unit 4 Indefiniteness
1) Indefiniteness (In Gneneral) a) Many contracts are created informally with just price, quantity, and time for performance decided upon. b) Terms of agreement must be reasonably definite in order for an agreement to be enforced c) If the terms are so indefinite that a court wont be able to determine if there had been a breach, then no contract can be found. d) Two options when parties leave out material terms from their agreement i) No intent to enter into binding contract ii) Intent to enter binding contract, just omitted some material e) Indefinite scenarios 11

Contracts 1: Outline Fall 2010 Victoria Vlasis i) They are silent as to material term ii) They are vague as to material term iii) They agree to agree on a material term iv) They agree to negotiate a material term in good-faith later f) UCC and Restatement adopt flexible standard to the degree of definiteness requires 2) Common Law Rule: A court will not enforce a contract unless terms are reasonably certain a) Courts are reluctant to impose an agreement on parties when they did not intend to be bound b) Material Terms are subject matter, price, duration, time, quality, payment terms c) If silent as to material term then courts will supply a term if language or circumstances allow (1) Course of performance, course of dealing, trade usage, custom ii) If vague as to material term the courts are historically unwilling to supply a term (1) Ex: fair share reasonable price first class hotel iii) Agree to Agree: courts historically unwilling to supply term (1) Modern courts have greater willingness to enforce contract (2) The more indefinite the agreement, the more likely parties didnt intend to be bound iv) Agree to Negotiate in Good-Faith: courts will enforce the promise to negotiate, but may only grant reliance damages if the promise has been breached 3) UCC Approach to IndefinitenessDefault gap-fillers when parties intend to contract a) Open price terms 2-305(1) b) Price formula based on external standard fails 2-305(1)(b) c) Agree to agree on price 2-305(1)(c) d) Open time of delivery 2-309(1) e) Open place of delivery 2-308(a) f) Open payment term 2-310 g) The agreement is unenforceable without a quantity term, except in the case of output contracts or requirement contracts i) Output Contract: 2-306 I promise to sell to you all the widgets I produce this year ii) Requirements Contract: 2-306 I promise to buy from all you all the widgets I need this year iii) Limits on the quantity in these 2 types [2-306(1)] (1) Good-faith (2) No quantity unreasonably disproportionate to any stated estimate or to normal output or requirements

Unit 5: Consideration
1) Consideration (in general) a) In order for a promisors promise to be legally binding, the promisee must pay for the promise i) With cash, performance, or her own promise b) BARGAINED-FOR-EXCHANGE (must have this)


Contracts 1: Outline Fall 2010 Victoria Vlasis c) Rule: A promise will not be legally enforceable unless it is supported by consideration. A promise will be supported by consideration if the promisee gives something of legal value in exchange for the promise. i) Legal Value = promisee must suffer some sort of legal detriment d) Option Contract: A promise is made to keep an offer open and is enforceable if the promisee gives you something in return (money, promise, etc.) i) Offeree has option to take it or leave it e) 2-205 UCC Merchants Firm Offer i) A merchants promise to keep an offer open does not require consideration Legal Detriment a) Promisees legal detriment can be forbearance or a promise to act or forbear i) An act = doing something you arent legally required to do ii) A forbearance = refraining from doing something you have a legal right to do Exchange a) The promisor must be seeking the legal detriment that the promisee suffers i) Ex: I have the book at home, If you want it, come to my house and I will give it to you. (1) But the promisor wasnt looking for you to come to his house (2) This is a conditional gift promise Adequacy of Consideration a) Courts dont look into whether consideration was adequate as long as there was a legal detriment i) Exception: sham consideration (1) No bargaining for a peppercorn, or $1 (2) Cant exchange $1 for $1millcourts wont enforce it (3) People use this to make conditional gifts enforceable, but usually doesnt work b) When a court asks if consideration was sufficient they do NOT mean adequate, they mean if it was supported by consideration c) Promising to give up a legal claim (like a right to sue) that turns out to be invalid is sufficient consideration only if the promisor had a good-faith belief the claim was valid. Pre-existing duty rule a) If you were already legally required to act or forbear, your promise to act or forbear is not a legal detriment (so not consideration) b) Past consideration, based on some sort of pre-existing duty, is no consideration c) If promisee already owes duty to the promisor to do whatever it was that serves as the supposed consideration for the promise, then the promise isnt part of an exchange consideration is missing d) Modification of Contracts i) Ways around the pre-existing duty rule when modifying contracts (1) Both parties modify their obligations (a) Promise to charge less for promise to pay one day early (2) If there is a good-faith dispute as to how much is owed, both parties would suffer a legal detriment from settling someone in the middle (has to be in middle area) 13





Contracts 1: Outline Fall 2010 Victoria Vlasis (3) Rescind the old contract and enter into a new one. (a) This creates three contracts: original, rescission, and new one (b) Will only work if both sides still have some performance left ii) UCC doesnt require consideration for the modification of contracts as long as they are done in good-faith. e) Illusory Promises i) Empty promises ii) If one of the promises involved is an empty and meaningless commitment, there is no exchange for the meaningful promise of the other, and no consideration iii) Promisor retains discretion over whether to perform (if a contract is made with an illusory iv) Illusory if the condition is in promisees complete control v) Examples of Illusory (1) I promise to paint your house if I feel like it (2) I will buy as much candy as I want vi) Examples of tricky Non-Illusorys (1) I promise to paint your house if the weather is good (a) Promisee isnt in control, mother nature is (2) I will buy as much candy as I need (a) Promisee isnt in control of what he needs, so not illusory f) Clauses that Allow One Party to Terminate i) At any time with 30 days notice [there is consideration] ii) At any time [depends on whether the court will imply notice (cases go both ways) but UCC implies reasonable notice (which is usually 30 days) which gives it consideration] iii) At any time without notice [common law would find it illusory. UCC would strike the clause as unconscionable and imply a reasonable term] iv) At any time without notice, but does not specify time [[common law would say illusory, modern trend is to imply reasonable time which gives it consideration] v) At any time after 30 days [there is consideration, but UCC would still require reasonable notice to terminate after the 30 day period] g) Conditions of Satisfaction i) I promise to pay if I am satisfied ii) There is consideration b/c courts will require you to exercise your discretion in good-faith (1) Issues of taste, fancy, likes are subjective standards (2) Issues of utility, fitness, value are objective standards (would a reasonable person have been satisfied) h) Exclusive Dealings Contracts i) Court implies a promise to make a good-faith effort to sell