Formation
What is a conditional promise? What is an illusory promise?
Conditional
- A conditional promise could be either (1) a gift or (2) a contract
- Satisfaction of condition MUST induce promisor’s promise
Illusory
- A promise of a future performance where occurrence remains entirely within the discretion of the promisor… lacks mutuality of obligations!
o (a) does not restrict promisor’s future right of action
o (b) gives promisor unfettered discretion to perform or not perform promise
o (c) does not restrict promisor’s autonomy
o (d) essentially no commitment/ restriction on actions by agreement
When can a minor get out of a K? What are the damages of getting out of the K?
- they must disaffirm within a reasonable time after the age of majority
- if the K is for necessaries then K can be disaffirmed but the minor is liable for whole value of necessary
- If the K is not for a necessary then the minor disaffirms and can recover consideration and return what they have
What are the two main issues with standard form Ks?
Lack of notice
Lack of choice
What are the common conditions? When are they excused? How?
Conditions
Condition precedent
Condition subsequent
Concurrent condition
Express condition
Implied/Constructive condition
Excused
Hindrance
Waiver
- Voluntary and intentional relinquishment of a known right- the right not to perform due to the failure of a condition
- May be implicit or explicit
Divisibility
- A K is divisible if
(a) performance of each part are divided into separate parts AND
(b) performance of each party by one party is the agreed exchange for a corresponding part by another party
Restitution
What are the factors to consider when choosing a remedy?
- Adequacy of damages
Difficulty of proving damages, procuring substitute or collecting damages
Unique goods or other proper circumstances
Specific Performance often given in Ks for antiques and real estate
- Uncertainty of K terms
- Fairness
Unreasonable hardship on breaching party
- Public policy
- Difficulty in supervision
- K for personal services not subject to specific relief
To be personal service must have an unique aspect that cannot be done by others
What is necessary to form a contract? How is a K different from an option K?
K
- Offer + acceptance + consideration = K formed
option K
-Promise which meets the requirement for the formation of a contract that limits the promisor’s power to revoke an offer
- Must be in writing and supported with nominal consideration to create option K
Option K Under UCC
- Promise to keep an offer open is enforceable even if no consideration has been made to keep the offer open if:
1. The merchant offers to buy or sell goods in a signed writing; and the writing gives assurances that it will be held open
- E.g., “this offer will be held open for 10 days”
2. Offer is irrevocable during the time stated, or if no time is stated, for a reasonable time (cannot exceed three months)
What are the two approaches to analyzing mental capacity? Does it make a K void or voidable?
Affective
- Inability to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition
- Notice required
Cognitive
- Incapacity to understand the nature of the transaction and apprehend its consequences
- No notice required
makes K voidable if
- Terms unfair
- Counterparty acts in bad faith
- Justice requires it
How do courts determine if what ambiguous terms mean in a K?
Contextualist
-The philosophy of this view is that words have no fixed “starting” meaning
- Courts will consider extrinsic evidence in addition to the language and structure of the document itself to determine the meaning of the disputed language
Textualist
- If the language is ambiguous (susceptible to competing interpretations proposed by disputing parties), ONLY THEN will courts consider extrinsic evidence to prove the K’s meaning
The plain meaning of the term governs
How do parties determine if a contract breach? Under UCC and Restatement
UCC= Perfect tender rule
- Buyer has right to reject goods that do not perfectly conform to K if the buyer notifies... timely fashion, reasonable manner & sufficient particularity
- BUT Seller may cure defect if... time remains for performance & gives sufficient notice
- If Buyer accepts or fails to reject... must pay for goods ... but can seek remedy for breach
- If a breaching party has substantially performed the entire K, then she is entitled to recovery on the K... Non‐breaching party will get offsetting damages for loss due to the immaterial breach.
- If a breaching party has materially breached the contract, Then... Non‐breaching party may withhold performance; Breaching party owes damages; Breaching party may be able to recover on theory of restitution.
Restatement
- Material breach (extent injured party is deprived of benefit)
- Substantial performance (if performance is deemed substantial there is no material breach)
When does the UCC use specific performance? When does the Restatement use specific performance?
UCC:
i. Specific performance may be decreed where the goods are unique or in other proper circumstances
ii. The buyer has a right of replevin (specific performance for goods!) for goods identified to the K if after reasonable effort the buyer is unable to effect cover (get substitute) for such goods or the circumstances indicate that such effort will not work
Restatement
- not enforced if the damages would be adequate or if the K is for personal services
What are the elements of promissory estoppel? when is it used?
Elements
i. Promise by defendant
ii. Detrimental reliance of plaintiff
iii. Reliance induced plaintiff
iv. Reliance reasonably foreseeable to promisor
v. Enforcement to prevent justice
Used as a substitute for consideration
- Does NOT create a contract, just meant to prevent injustices
- used when there is no K but some type of promise and reliance
How does substantive unconscionability differ from procedural? What happens if a K is unconscionable?
Procedural unconscionability: Procedural defects in the bargaining process
Substantive unconscionability: Substantive unfairness (overly harsh or one-sided results) in the resulting agreement
What happens
Common law:
(1) Refuse to enforce the K;
(2) Enforce the remainder of the K, without the unconscionable term; OR
(3) Limit the application of any unconscionable term as to avoid an unconscionable result
UCC
- The parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting purpose, and effect to aid the court in making the determination of whether the K or a clause is unconscionable (essentially parties argue why or why not)
What is the parol evidence rule? approach at CL and UCC? what if K is mixed?
Once agreement is reduced to final and complete writing, neither party is allowed to introduce prior written or oral or contemporaneous oral evidence to vary terms
1. Is the party trying to bring in EE to introduce a K term?
- Must have a written K, and the K terms are in dispute
- Must have extrinsic evidence for a K term (or alleged term), that they are hoping to be introduced to jury
- EE has to be prior or contemporaneous for which there is no extra consideration
2. Level of Integration: Determine whether parties’ agreement is integrated at all
- If not integrated → extrinsic evidence that seeks to establish terms IS admissible (stop here)
3. If integrated, determine the degree of integration: complete or partial?
- If complete, extrinsic evidence is barred (stop here)
4. If partial integration, determine whether parol term is consistent with or contradicts the writing
5. If consistent or non-contradictory, then admissible
6. If inconsistent or contradictory, then inadmissible
Types of test for integration
1. Four Corners Rule: Limited to document itself to define intentions of the parties
2. Common Law - Modern Test (Restatement)
3. UCC
- Presumption that K is NOT fully integrated… may be explained or supplemented by:
- Course of dealing, usage of trade, or course of performance EVEN IF parties intended agreement to be complete
Mixed: which category makes up the substance of the contract is what governs
What constitutes a material breach and substantial performance? How do conditions impact?
Substantial performance
- If performance has been deemed substantial there has been no material breach
- If a party has not substantially performed she has materially breach
Material Breach
one that undermines the substantial benefit of a bargain
conditions
- non-express conditions substantial performance is enough
What are the types of expectation damages and their remedies?
Direct
- loss in value of subject matter of K due to breach
Consequential
- Losses resulting from breach which are reasonably foreseeable and unavoidable
- Things outside of the contract
Incidental
- the cost of securing a substitute performance
Buyers remedy = direct damages + incidentals + consequential - expenses saved
Sellers remedy = direct damages + incidentals - expense saved due to breach
What is the mailbox rule?
Acceptance valid on dispatch
- soon as you send, you've accepted
Rejection (or counter offer) and revocation are valid on receipt
- as soon as other party receives rejection/revocation offer is cancelled
Option contracts = acceptance valid on receipt
if option contract, offer is accepted once other party receives acceptance
How does mistake differ from misrepresentation? what are the test for each?
Mistake: belief not in accord with the facts (two types unilateral and mutual)
1. Both parties must be mistaken at the time of contracting as to a basic assumption of the K
2. the mistake must have a material effect on the bargain; AND
3. the adversely affected party must NOT bear the risk of that mistake
If unilateral then need one of these also
(a) Enforcement would be unconscionable;
(b) the other party had reason to KNOW of the mistake; OR
(c) the other party’s fault caused the mistake
Misrepresentation: assertion not in accord with the facts
1. Assertion not in accord with facts
2. Assertion must be fraudulent (intent/subjective) or material (not intended/objective)
3. Assertion induced assent
4. Justified reliance on assertion
How does the Implied duty of Good faith and fair dealing impact a K? UCC and Restatement
It cannot be contracted around
It applies during performance, enforcement, and winding up
UCC
- Good faith: Honesty in fact and the observance of reasonable commercial standards of fair dealing
- Relevant commercial practices to consider (in hierarchical order):
Restatement
- Every contract imposes upon each party a duty of good faith and fair dealing in its performance and in its enforcement (R2K §205)
When does impossibility/practicability and frustration of purpose apply?
When duty to perform was triggered but can no longer be performed
Impossibility
duty discharged if:
- A supervening event occurs that
- makes performances impracticable (objective standard!)
- nonoccurrence of event was a basic assumption on which K was made
- invoking party not at fault
- invoking party did not assume risk of event’s occurrence
Frustration of purpose
duty discharged if:
- A supervening event occurs that
- substantially frustrates principal purpose of K (Subject matter/main purpose of K matters to )
- nonoccurrence of event was a basic assumption on which K was made
- invoking party not at fault
- invoking party did not assume risk of event’s occurrence
How certain or foreseeable must the remedy damages be for the non-breaching party to recover?
Certain = must be substantially certain
Foreseeable
1. must be arising naturally in the usual course OR
2. In contemplation of both parties as the probable result of the breach
What constitutes acceptance, offer, and termination?
Accept
- silence cannot constitute acceptance
- by performance or starting performance
- Must accept under mirror image rule (assent to the same exact terms) or else counter offer only applies to restatement; if sale of goods then battle of the forms issue in interpretation issue
Offer
- UCC: Need quantity
- Restatement: QTPPPS
- Rewards and ads if clear, explicit and definite
Terminate
- Revocation of offer
- Rejection of offer
- Lapse/expiration of offer
- Death or incapacity
- Operation of the law
What is the UCC approach to SOF? What about restatement?
UCC
- must have a writing
- signed by the party against whom K is being enforced
- contents of K:
*Quantity
*May be incorrect and/or incomplete as to agreed terms
- Goods over $500
Restatement
- Any writing including multiple pieces
- Signed by or on behalf of party against whom K is being enforced
- Contents (reasonably reflects)
* Subject matter of contract
* Indicates agreement
* Essential terms of unperformed promises
how does the battle of the forms impact a K?
To form a K,
Example:
- Party A makes offer with own terms and conditions, Party B accepts with its own terms and conditions; Party B's response effectively serves as a counter-offer because it includes different terms from Party A's original offer.
- If Party A proceeds with the transaction without explicitly rejecting Party B's terms and conditions, it may be seen as accepting Party B's counter-offer.
- At this point, there may be a "battle of forms" where each party insists on the applicability of its own terms and conditions. This creates uncertainty about which set of terms governs the contract.
- Courts will look at various factors to determine which terms govern the contract. These factors may include the parties' conduct, the consistency of terms, trade customs, and any express agreement regarding the terms. In some jurisdictions, the Uniform Commercial Code (UCC) provides rules to resolve the battle of forms.
How should you analyze a K problem?
1. Is it under the restatement or UCC?
2. Was a K formed?
3. Was there any reliance if there wasn't a K? or are there any defense to enforcement of K?
4. Are any terms ambiguous or need to be interpreted by the court? Or are there additional or different terms?
5. Did both parties perform their duties required in K? Was there a breach in the K?
6. Was the breach material or did the party substantially perform?
7. Remedies available
What is necessary for someone to be a lost volume seller? How does it impact damages?
(1) capacity/enough to supply to meet all demand AND
(2) the desire to meet it
- Lost volume sellers obtain damages from breaching parties regardless of whether they perform replacement transactions