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Page 1: Master Contracts Outline

Contracts I

I. Contract Formation

A. Basic elements of contract formation

1. Offer

2. Acceptance

3. Consideration

B. Applicable Rules

1. General contract law

a. Uniform Commercial Code (UCC)

i. Applies to the sales of goods

ii. Goods are “movable at the time of contract formation”

b. Common law (Classical Κ)

i. Applies to everything but goods

ii. K2d—secondary source but very influential

c. Which rules apply?

i. What is the greater portion of the contract ($)

ii. 50/50 could be either so must argue both

2. Statute of frauds

a. Certain contracts must be in writing

i. Sale of goods >$500

1) Also personal property >$5,000

2) E.g. intellectual property

ii. Sale of real property

iii. Contract that cannot be completed within 1 year

1) Literally cannot under any circumstances

2) If at all possible then SOF does not apply

b. If SOF applies then see SOF section

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II. Elements of a Contract (See Ray v. William G. Eurice & Bros., Inc.)

A. Offer (See Lonergan v. Scolnick and Normile v. Miller)

1. Expression of intent to enter into a bargain

a. Something for something (consideration)

b. Intent to be bound by the offer’s terms without any further assent from offeror

2. Creates a power of acceptance in offeree

3. ORP STANDARD —if the offeree accepts, will a contract be formed?

4. Classical v. Modern (See Walker v. Keith and Quake v. AA)

a. Classical jurisdiction

i. Offer must expressly state all material terms; or

ii. A non-debatable formula to determine terms

iii. Cannot “agree to agree” later

iv. Formalize later? Only if certain terms

b. Modern jurisdiction

i. Do the parties intend to be bound?

ii. Is there enough information to determine what constitutes breach and

fashion a remedy?

iii. ORP STANDARD —argue both ways (…reasonable minds could differ…)

iv. Formalize later? If the terms can be reasonably figured out

5. Advertisements

a. Generally NOT considered offers

i. Cannot create a power of acceptance in an unreasonably large number of

people

ii. ORP STANDARD —did they intend to Κ with everyone who received the ad?

b. Exceptions:

i. Specified number of people

1) “First come, first served”

2) “First ten people to arrive”

ii. An expressed limited supply and expressed number of people who can

accept

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iii. When it is clear the seller has enough supply to feasibly Κ with everyone

who views the ad

1) Flyers directed to certain people

2) Posters in the mall

6. Form letters

a. Generally NOT offer—same reason as advertisements

b. Consider them an invitation to make an offer

c. ORP STANDARD

i. Did the sender intend to be bound?

ii. Are the terms listed enough to form a Κ?

7. Estimates, quotes, and bids

a. Estimates are not offers

i. Terms usually not definite enough

1) Is the estimate meant to be binding?

2) ORP STANDARD —would an ORP expect the “offeror” to be bound to

the estimate?

ii. Invitation to make an offer WITH solid terms

b. Quotes generally are not offers

i. Terms may or may not be enough to be an offer

ii. ORP STANDARD —could be enough for an offer…argue both sides

c. Bids

i. Usually offers

ii. Follows an invitation to bid (make offers) that expresses requirements of an

offer

iii. Usually very specific terms

8. Terminating the power of acceptance

a. Rejection by offeree

i. “I do NOT accept”

ii. Counteroffer

1) Terminates offer by rejection

2) Creates power of acceptance in original offeror under different terms

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b. Lapse of time

i. “Reasonable amount of time”

ii. ORP STANDARD —argue both sides

c. Revocation

i. Offeror has power to revoke any time before offeree accepts

ii. Revocation is effective upon receipt by the offeree

iii. Can be a term of the offer—e.g. “must accept before 12/25/2014”

1) Term like this is NOT a promise to keep open (Option Κ)

2) States time of automatic revocation

iv. Offeree must get reliable notification

1) Not necessary a direct expression of revocation

2) Somehow must get notification (See Normile v. Miller)

d. Death or incapacitation of either party

9. Option Κ (Firm offer) (See Wood v. Lady Duff Gordon, Berryman v. Kmoch,

and Walser v. Toyota)

a. Promise to keep offer open for a specific amount of time

b. Only valid under certain conditions

i. Supported by its own consideration

1) Basically a mini-Κ inside an underlying Κ

a) “I’ll sell you my car for $1000…

b) ...and keep the offer open for 1 week if you give me $10”

2) Little or seeming sham consideration is sufficient to validate

ii. Option promise under K2d § 90(1) (overt promise)

1) “I promise to keep offer open for 1 week”

2) Rules for promissory estoppel (PE) apply

a) Only as far as the promise to hold the offer open

b) To the extent necessary to prevent injustice

iii. Reliance under K2d § 87(2) (implicit promise under the circumstances)

1) Substantial, reasonable, foreseeable reliance on an offer is binding to the

extent necessary to prevent injustice

2) Generally only applies in GC—Subcontractor context (See Drennan v.

Star Paving) Baird

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iv. Signed writing under K2d § 87(1)(a)

1) A signed writing stating offer will remain open is binding if:

a) It recites any consideration (regardless of whether consideration is

actually paid);

b) The underlying contract is fair; and

c) The option is for a reasonable amount of time

2) Some courts follow; most do not

v. Merchant signed offer to buy or sell goods under UCC § 2-205

1) If a merchant signs an offer that states a period of irrevocability, it is valid

without consideration, statement of consideration, or reliance

2) Can be no longer than 3 months (under UCC only)

3) PE under § 87(1), § 90(1), or option w/ consideration may still apply past

the 3 month limit

vi. Beginning performance on unilateral contract under K2d § 45

1) A contract that can only be accepted by performance becomes

irrevocable when performance begins (explained fully under acceptance

section)

2) Preparing to perform does not constitute beginning performance but §

87(2) may apply to reliance costs

B. Acceptance

1. Manifestation of intent to be bound by the terms of an offer in the manner

prescribed by the offeror

2. Common Law (applies to non-goods AND in absence of UCC definition)

a. Mirror image rule

i. Acceptance must be to the exact material terms of the offer

1) Material terms are those that offer is dependent upon

2) Simple requests with a purported acceptance may still be acceptance

and not counteroffer

3) ORP STANDARD

a) “I accept but please have the car washed…” Acceptance

b) “I accept only if you wash the car first…” Counteroffer

ii. Any additional/different terms constitute a rejection and counteroffer which

must be accepted by original offeror before Κ formation

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b. Last shot rule

i. If there are no overtly agreed upon terms but actions imply a contract then

last shot rule applies

ii. The terms of the last offer are the terms of the Κ

c. Manner of acceptance

i. Bilateral Κ

1) Acceptance by promise or performance

a) Promise for promise—“I’ll pay you $10,000 for your car”

Promise to pay $10k

Promise to deliver car

Κ formed when agreement made (mutual assent) regardless if car

is ever delivered (if not then Κ breached)

b) Promise for performance—“I’ll pay $500 if you paint my house”

Promise to pay $500

Κ formed even if painter says nothing but starts painting the house

c) Offeror can specify how to accept, and if so Κ only formed when the

specific action happened (promise or performance)

2) Acceptance by part performance

a) K2d § 62(1) If offer gives choice of promise or performance then

tender or beginning of performance is acceptance

b) K2d § 62(2) Acceptance by performance in this manner constitutes

promise to complete performance (in contrast to unilateral Κ)

Once performance is begun, the contract is formed and both

parties are bound to the contract

Beginning of performance operates as a promise

ii. Unilateral Κ (See Petterson v. Pattberg and Cook v. Coldwell Banker)

1) Acceptance only by performance

2) “I’ll pay you $100 if you run around the block”

a) Acceptance occurs when performance complete

b) When performance begins, offer becomes irrevocable (K2d § 45) but

Κ formed at completion

Must be tender or beginning of performance

NOT preparation to begin performance

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3) E.g.—bonus payments, reward offers, rebates, etc.

d. Mailbox rule

i. An offer is effective when RECEIVED by offeree

ii. Acceptance is effective when SENT by offeree

1) Exceptions:

a) Offer can state acceptance only valid when received

b) Option Κ acceptance is only when received

iii. If offer is revoked but offeree already mailed acceptance then Κ is formed

3. Acceptance with the sale of goods (UCC § 2-207—“Battle of the Forms”) (See

Princess v. GE and Brown v. Hercules)

a. § 2-207(1)—A definite and seasonable timely expression of acceptance will

form Κ unless:

i. Acceptance is expressly conditional on additional or different terms

1) An overt statement that the new term(s) must be agreed upon before Κ

becomes binding

2) Requires further assent from original offeror

ii. Could be informal agreement—not necessarily in writing

b. § 2-207(2)—If Κ is formed under § 2-207(1) then the following applies to

additional or different terms:

i. Both merchants (anyone who is regularly in business and is making the

deal in question for their business and not as a consumer)

1) Additional terms become part of the contact unless the offer expressly

rejected additional terms

2) The additional terms would materially alter the Κ (comment 4)

a) Surprise

b) Hardship

3) The offeror expressly objects to the additional terms

4) Different terms have three approaches (if present, argue all three)

a) Approach 1—apply § 2-207(2)

b) Approach 2—different terms NEVER come in

c) Approach 3—Apply the Knock-Out Rule—different terms knock each

other out and are replaced with reasonable terms and background

provisions of the UCC

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ii. Only 1 or neither is merchant

1) Additional and different terms must be agreed upon

2) Terms of the offer stand

c. § 2-207(3)

i. Supplants common law “last-shot rule”

ii. Applies when no Κ is formed but parties act as Κ is formed

1) Knock-Out Rule applies

2) All different terms out

3) UCC warranties and background provisions apply

4) Terms like limitations on liability are out

4. Boxed terms—order something and terms arrive in the box with the product (See

Hines v. Overstock and DeFonted v. Dell)

a. Approach 1

i. Κ formed at point of sale

ii. Terms in the box are additional terms (apply UCC § 2-207)

b. Approach 2

i. Κ not formed until terms received and accepted

ii. Acceptance occurs if product kept for reasonable amount of time

C. Consideration

1. Something of value or detriment to a party

a. E.g.—MONEY for GOODS

i. Party A pays money (detriment) to party B (value)

ii. Party A gets goods (value) from party B (detriment)

b. Also forbearance from an act one is legally able to do (See Hamer v. Sidway)

c. A promise is consideration if fulfillment of that promise would be consideration

i. “I’ll paint your house Tuesday”

ii. “I’ll pay $50 for that baseball card”

d. Voluntary change in legal status (forgiveness of debt)

e. Must be a bargain (SOMETHING for SOMETHING)

2. Cannot be a gratuitous gift, or for past performance (See Dougherty v. Salt)

a. “I’ll give you $2,000 because I want you to quit your job”—GIFT, quitting job is

not a term of getting money

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b. “I’ll give you $2,000 if you quit your job”—BARGAIN, $2k consideration for

quitting job (an act of detriment)

3. Conditioned gift vs. consideration (See Plowmen v. Indian Refining Co.)

a. “I’ll let you borrow my car if you return it with a full tank of gas (gas tank full)”

i. Conditioned gift

ii. Filling up the tank is not something the owner wants in exchange for use of

the car (the full tank has no value to the owner because it’s already full), just

a condition of use—replace the gas you use

b. ““I’ll let you borrow my car if you return it with a full tank of gas (gas tank

empty)”

i. Consideration

ii. The owner lets you use his car and in return he gets a full tank of gas

4. Consideration does not have to be fair (See Batsakis v. Demotsis)

a. Κ formation is not dependant on a fair bargain, just a bargain

b. Κ law is meant to be binding when parties want to bound, not to make an unfair

deal more equitable

5. Sham consideration

a. Something that would normally be consideration cannot be given just to avoid

the consideration requirement if it is not really part of a bargain

b. E.g.—$1 for a Yacht SHAM CONSIDERATION

c. ORP STANDARD —would someone believe a yacht would cost $1?

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III. Alternate Theories of Recovery

A. Promissory estoppel (K2d § 90)

1. Elements of PE

a. Promise

i. A clear and definite promise by a party (not stating nor expecting any

consideration in return)

ii. The promise must induce action (or forbearance) in the promisee

b. Reliance

i. Actions by the promisee in reliance of the promise being carried out

ii. Actions must be:

1) Foreseeable—to the promisor

2) Reasonable—actions by the promisee

3) Actual—promisee must change behavior that they wouldn’t have done

anyway

4) Detrimental—promisee must be harmed because of reliance/worse off

compared to if the promise was never made (not worse off than you

would be if the promise had been fulfilled)

c. Injustice

i. Notion that it would be fundamentally unfair to the promisee to leave him

without recourse just because there was no consideration to enforce the

promise

ii. The amount of injustice may affect the remedy

2. Remedy

a. Performance of the promise; but

b. Limited as justice requires

3. Cases

a. Kirskey v. Kirskey

b. Harvey v. Dow

c. Katz v. Danny Dare

d. Aceves v. U.S. Bank

B. Restitution (Contract Applied-in-law/Quasi-contract/Unjust Enrichment) (See

Credit v. Pelo, Commerce v. Equity, Watts v. Watts)

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1. Elements

a. Material benefit being provided to person receiving benefit

b. Intent to charge (not doing this for free)/benefit by the person providing the

service

i. Professionals have presumption of yes

ii. Others have presumption no

c. Reasonable to provide to person receiving benefit

2. Remedy—lesser of:

a. Cost to provider of benefit; or

b. Amount of benefit to recipient

3. If SOF defense applies, then you can still claim restitution

4. Cases

C. Promissory Restitution (See Mills v. Wyman, Webb v. McGowin)

1. Elements

a. Same as restitution:

i. Material benefit being provided to person receiving benefit

ii. Intent to charge/benefit by the person providing the service

iii. Reasonable to provide to person receiving benefit

b. PLUS—Promise made to pay for past performance.

i. It is not a promise relied upon and not part of a bargain.

ii. Comes after benefit has been provided.

2. Burden shift to the defendant to prove plaintiff intended to provide gift

3. Remedy

a. Enforcement of promise; or

b. If promise is not reasonably proportionate then reduced to level of service

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IV. Statute of Frauds (See Crabtree v. Elizabeth Arden, Beaver v. Brumlow, Alaska

Dem. v. Rice, Buffaloe v. Hart)

A. Certain contracts must be in writing

1. Sale of goods >$500

a. Also personal property >$5,000

b. E.g. intellectual property

2. Sale of real property

3. Contract that cannot be completed within 1 year from Κ formation

a. Literally cannot under any circumstances

b. If at all possible then SOF does not apply

B. Common Law (K2d § 139)

1. A signed writing by the party to be charged that reasonably identifies the subject

matter of the contract,

a. definition of signature §134—Any symbol made or adopted, with the intent,

actual or apparent, to authenticate the writing as that of the signer

b. Literally only applies to SOF, but arguably could be applied to other writings in

the Restatement--§87(1)—signed option offer

2. It sufficiently indicates that a contract has been made between the parties or has

been offered by the party to be charged, and

a. States with reasonable certainty the essential terms of the unperformed

promises in the contract

b. the writing can be made at any time

c. does not need to be a memorialization of a contract (can be a diary entry)

3. if essential terms are missing, other evidence can be supplied to indicate that term,

but generally the writing is inadequate if it omits an essential term (compare to

UCC)

4. The signed writing must identify the contract in question—Ex. a lease contract with

an optional renewal provision signed by both parties probably does not adequately

show the existence of the renewal contract, but will show the existence of an offer

by the party to be charged

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C. Exceptions under common law

1. Part Performance (K2d)

a. K for interest in land - If one party reasonably relies on K and other party

continues to assent to terms without writing, then K2d §129 allows for specific

performance/equitable relief NOT damages. K2d §139 can be used to get

damages.

b. K2d §130 allows for performance that can’t be completed within 1 year for party

that fully completes performance within 1 year:

c. Majority – SOF doesn’t prevent enforcing other parties’ promises under K

d. Minority – SOF doesn’t prevent enforcing other parties’ promises under K, BUT

only if the full performance occurred within 1 year of making of K. Otherwise,

recovery is limited to restitution.

2. Promissory Estoppel (K2d §139, §90) but first restitution under 139

D. UCC § 2-201

1. 2-201(1) requires a writing sufficient to indicate a contract for sale has been made

between the parties

a. less demanding than K2d—need not state all essential terms of the contract—

even quantity— but performance will be limited to the quantity indicated on the

memorandum (thus the writing must at least indicate some quantity to be

enforceable at all)

b. Signed by party against whom enforcement is sought

c. Definition of signed—any symbol executed or adopted by a party with present

intention to authenticate a writing—more restrictive than the restatement’s

definition

d. Standard is whether there the writing affords a basis to believe that oral

evidence rests on a real transaction

2. 2-201(2) is an additional way a writing can satisfy the SOF—Between merchants if

one party sends a written confirmation that would otherwise satisfy §2-201(1)

against the sender (there is a reasonably sufficient basis to indicate that a contract

has been entered into), then that confirmation is valid (as to the SOF) against the

recipient if the recipient has reason to know of its contents, and does not object to

the existence of the contract within 10 days (even though the recipient didn’t sign it)

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a. a signed objection may be a valid writing under 2-201(1) if it does not reject the

existence of a contract

b. Ex. Merchant to a contract sends another merchant a confirmation for 1000

widgets of $5000, and the recipient responds, “No, the contract was for

$7000.”not a valid objection under 2-201(2) and the SOF will be satisfied

c. Objection must object to the actual existence of the contract

3. (See Crabtree v. Elizabeth Arden)—there may be several writings that combine to

form a memorandum that satisfies the SOF—they must clearly relate to the same

transaction, but as long as some of the writings state with reasonable certainty the

essential terms of the contract, and another writing contains a signature, then the

writing is valid as to the SOF

E. Exceptions under UCC 2-201

1. Part performance

a. Under UCC, part performance can only validate K for the goods which have

been accepted or paid for and accepted

b. Admission by other party of the existence of K

2. Once admitted, party making admission cannot use SOF as a defense

3. Goods are specially manufactured

4. Vendor accepts or holds payment

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V. Interpretation of Contract Terms (See Joyner v. Adams and Figaliment v. BNS)

A. General Principles/Historical Development

1. What happens when two (or more) parties to a contract interpret various terms

within in the contract differently?

a. The Peerless Case

i. Contract for cotton to be shipped on the ship Peerless

ii. But there were 2 ships named Peerless—one arriving in October, one in

December

iii. Buyer interpreted the contract to be the earlier ship, seller interpreted it to be

the later one

iv. When the seller shipped the goods, the buyer repudiated the contract

v. Who breached?

vi. Court found that there was no contract

2. Classical court

a. If there is no “meeting of the minds”—i.e. parties attach different meanings to

one or more terms, then there has been no mutual assent, and there is

therefore no contract

3. Modern Theorists

a. Modern courts and scholars began to analyze interpretation issues objectively

b. How would a reasonable person interpret a given term or clause?

c. But what if two parties subjectively attached a meaning that was different from

what an objectively reasonable person would attach?

d. Or worse, what if the parties disagreed over the term, but an objectively

reasonable person would interpret the term different from either party?

B. Modified Objective Approach

1. If both parties subjectively agree to the interpretation of a given term or clause,

then that meaning will govern even if it is different from the interpretation that an

objectively reasonable person would attach

2. If the parties disagree, then decide who is more reasonable

a. If one party does not know or has no reason to know of the meaning the other

party attaches to a term, and the other party knows or has reason to know of

the meaning that the first party attaches, then the interpretation attached by the

first party will govern.

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b. If the situation is completely even and neither party knows or has reason to

know of the meaning the other party attaches—there is debate on how often

this actually occurs—then there has been no mutual assent and therefore no

contract

C. Restatement §201

1. Where the parties have attached the same meaning to a promise or agreement or

a term thereof, it is interpreted in accordance with that meaning.

2. Where the parties have attached different meanings to a promise or agreement or

a term thereof, it is interpreted in accordance with the meaning attached by one of

them if at the time the agreement was made

a. That party did not know of any different meaning attached by the other, and the

other knew the meaning attached by the first party, or

b. That party had no reason to know of any different meaning attached by the

other, and the other had reason to know the meaning attached by the first party.

3. Except as stated in this Section, neither party is bound by the meaning attached by

the other, even though the result may be a failure of mutual assent.

a. i.e. no contract if the parties both reasonably did not know nor reasonably

should have known of the other’s interpretation

D. Other considerations

1. Generally, a contract should be construed against the drafter of the contract,

because he has the knowledge, skill, and power to draft terms favorable to him.

a. But, when both parties are sophisticated, as in Joyner v. Adams, both parties

have the power and knowledge both to negotiate and to understand terms

commonly used, so less emphasis is placed on who actually drafted the

contract

b. Terms are also interpreted with the overreaching purpose of the contract

(fairness argumentwhat was the contract actually for?)

c. Plain language, course of dealing, and usage of trade are all factors that go into

who knows or reasonably should know what the other party means

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VI. Warranties Under the UCC (See Caceci v. DiCanio and Bayliner v. Crow)

A. 2-313 Express Warranty – overt statement, implied warranty - ORP would believe that

this is what you’re going to get; does not include “puffery” or opinions.

B. 2-314: Implied warranty of merchantability only applies to merchants who regularly sell

good of the kind in question. Fit for its ordinary use. Good has to be Ok/pass in the

trade. (cannot be materially problematic)

C. 2-315 – Implied warranty for fitness for a particular purpose – seller has skill or

judgment and knows or has reason to know that the buy is relying on the seller’s

expertise to select or endorse the good for a particular use.

D. 2-316 some warranties can be disclaimed

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