Contracts Outline

I. A Roadmap for Contract Law 7

II. The Bargain Theory of Contract 12

A. Consideration 12

B. Reliance 15

C. The Restitution Interest 17

III. Negotiation and the Contract 18

A. The Role of the Courts 18

B. Offer and Acceptance 18

C. Negotiation and Closure 22

D. Good Faith in Contract Formation 23

E. Problems with Standard Form Contracts 24

F. The Statute of Frauds 28

IV. The Content of a Contract 31

A. The Parol Evidence Rule and Reformation 31

B. Interpreting the Terms of the Contract 34

C. Implied Terms and the Implied Covenant of Good Faith 37

D. Express and Implied Warranties 40

E. Modifications 42

V. Legal Regulation of Contracts 44

A. Mistake of Fact 44

B. Public Policy and Illegality 45

C. Unconscionability 46

VI. Remedies 49

A. Expectation Damages 49

B. Mitigation 52

C. Reliance Damages 52

D. Restitution Damages 53

E. Specific Performance 53

F. Liquidated Damages and Agreed Remedies 54

VII. Conditions 58

A. Express Conditions 58

B. Implied or Constructive Conditions 59

C. Impossibility, Impracticability, and Frustration 61

VIII. Third Party Rights and Responsibilities 63

A. The Assignment of Rights and Delegation of Responsibilities 64

B. Suretyship and Guaranty Contracts 65

CASES

A.Z. v. B.Z., 431 Mass. 150 46

Alabama Football v. Wright, 452 F.Supp 182 62

Angel v. Murray, 322 A.2d 630 42

Ardente v. Horan, 117 R.I. 254 20

Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 22

Bailey v. West, 105 R.I. 61 17

Baker v. Bailey, 240 Mont. 139 32

Bank One v. Coates, 125 F.Supp.2d 819 48

Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183 14

Brookside Farms v. Mama Rizzo’s, Inc, 873 F.Supp 1029 43

C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169 27

C.R. Klewin, Inc. v Flagshp Properties, Inc., 220 Conn. 569 29

Carnival Cruise Lines v. Shute, 499 U.S. 585 26

Carpenter v. Chrysler Corp., 853 S.W.2d 346 40

Centronics Corp. v. Genitron Corp., 132 N.H. 133 38

City of Kenai v. Ferguson, 732 P.2d 184 23

City Stores Co. v. Ammerman, 266 F.Supp. 766 54

Clouse v. Myers, 753 S.W.2d 316 45

Cohen v. Cowles Media Company, 479 N.W.2d 387 16

ConAgra, Inc. v. Nierenberg, 301 Mont. 55 29

Contemporary Mission v. Famous Music Corp., 557 F.2d 918 64

Davis v. Satrom, 383 N.W.2d 831 19

Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 7

Donahue v. Federal Express Corp., 753 A.2d 238 39

Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 39

ePlus Group, Inc. v. Panoramic Comm., 50 UCC 2d 213 (2003) 56

Fertico Belgium v. Phosphate Chemicals Export Ass’n, 501 N.Y.S.2d 867 51

Fiege v. Boehm, 210 Md. 352 13

Fisher v. Jackson, 142 Conn. 734 14

Ford Motor Credit Co. v. Russell, 519 N.W.2d 460 18

Freund v. Washington Square Press, 34 N.Y.2d 379 49

Gardner Zemke Co. v. Dunham Bush, Inc., 115 N.M. 260 25

Hadley v. Baxendale, 9 Exch 341 (1845) 51

Haines v. City of New York, 41 N.Y.2d 769 37

Hamer v. Sidway, 124 N.Y. 538 13

Hamilton Bancshares, Inc. v. Leroy, 131 Ill. App. 3d 907 21

Harrington v. Taylor, 225 N.C. 690 15

Hill v. Gateway 2000, 105 F.3d 1147 27

Hopper v. All Pet Animal Clinic, 861 P.2d 531 46

Howard v. Federal Crop Insurance Corp., 520 F.2d 695 58

Hunt Foods & Industries, Inc. v. Doliner, 26 A.D.2d 41 33

In re El Paso Refinery, 196 B.R. 58 50

In re Nedwick Steel Co., 289 B.R. 95 65

Insurance 16, 27, 35, 45, 58

K & G Construction Co. v. Harris & Brooks, 223 Md. 305 59

KGM Harvesting Co. v. Fresh Network, 42 Cal. Rptr. 2d 286 51

Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d 324 61

Lanci v. Metropolitan Ins. Co., 388 Pa. Super. 1 45

Langemeier v. National Oats Co., Inc, 775 F.2d 975 47

Lenawee Ct. Bd. Of Health v. Messerly, 331 N.W.2d 203 45

Lige Dickson Co. v. Union Oil Co. of California, 96 Wash.2d 291 30

Lucy v. Zehmer, 196 Va. 493 7

Martinez v. Socoma Companies, 11 Cal.3d 394 63

Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57 41

Masterson v. Sine, 68 Cal. 2d 222 32

Maxwell v. Fidelity Fin. Servs., Inc., 184 Ariz. 82 47

MCC_Marble Ceramic Ctr, Inc. v. Cermaic Nuova D’Agostino, 144 F.3d 1384 36

Midwest Energy, Inc. v. Orion Food Systems, Inc., 14 S.W.3d 154 17

Migerobe, Inc. v. Certina USA, Inc., 924 F.2d 1330 29

Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772 36

National Surety Corp. v. United States, 118 F.3d 1542 65

New England Insulation Co. v. General Dynamics Corp., 26 Mass. App. Ct. 28 24

Oswald v. Allen, 417 F.2d 43 20

Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging, 69 Cal. 2d 33 35

Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 342 Md. 143 21

Peevyhouse v. Garland Coal Mining Co., 382 P.2d 109 50

Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 13

Racine & Laramie, Ltd., Inc. v. Dep. Of Parks & Recreation, 11 Cal. App. 4th 1026 (1992) 23

Ricketts v. Scothorn, 57 Neb. 51 16

Sally Beauty, 801 F.2d 1001 65

Sherwood v. Walker, 66 Mich. 578 (1887) 45

Siemens Energy & Automation v. Coleman Elec. Supply Co, 46 F.Supp.2d 217 (1999) 52

Singer Co. v. E.I. Du Pont De Nemours & Co., 579 F.2d 433 41

Situation Management Systems, Inc. v. Malouf, Inc., 430 Mass. 875 22

Step-Saver Data Systems v. Wyse Technology, 939 F.2d 91 26

Sun Printing & Publishing Co. v. Remington Pulp & Paper Co., 235 N.Y. 338 18

Taylor v. Johnston,15 Cal. 3d 130 60

Thompson v. Estate of Coffield, 894 P.2d 1065 33

Vlases v. Montgomery Ward & Co., 377 F.2d 846 41

W.W.W. Associates, Inc. v Giancontieri, 77 N.Y.2d 157 35

Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315 47

Z.R.L. Corp. v. Great Cent. Ins. Co., 156 Ill. App. 3d 856 35

STATUTES

Magnussen-Moss 63

Restatement §145 63

Restatement §261 59

Restatement §346 (1)(a)(ii) 50

Restatement §346(1)(a)(i) 50

Restatement §71(a) 20

Restatement §76 12

Restatement §76(b) 13

Restatement §79 12

Restatement 2d §1 12

Restatement 2d §110 28

Restatement 2d §131 29

Restatement 2d §139 30

Restatement 2d §151 44

Restatement 2d §152 44

Restatement 2d §153 44

Restatement 2d §154 44

Restatement 2d §175 13

Restatement 2d §20 20

Restatement 2d §202 34

Restatement 2d §204 32

Restatement 2d §205 23, 38

Restatement 2d §211(3) 27

Restatement 2d §217 32

Restatement 2d §227(1) 59

Restatement 2d §230 37

Restatement 2d §237 60

Restatement 2d §24 18

Restatement 2d §26 comment (c) 19

Restatement 2d §30(1) 20

Restatement 2d §356 55

Restatement 2d §36 19

Restatement 2d §360 53

Restatement 2d §42 21

Restatement 2d §45 21

Restatement 2d §45(1) 21

Restatement 2d §45(2) 21

Restatement 2d §59 19

Restatement 2d §61 19

Restatement 2d §63(a) 20

Restatement 2d §71(1) 12

Restatement 2d §77 Comment (a) 12

Restatement 2d §79 12

Restatement 2d §90 15

Restatement 2d 175 13

UCC §1-201(19) 37

UCC §1-203 23

UCC §2-103(1)(b) 37

UCC §2-201 28, 65

UCC §2-202 31

UCC §2-204(3) 23

UCC §2-205 14, 21

UCC §2-206(1)(a) 21

UCC §2-206(1)(b) 21

UCC §2-206(2) 21

UCC §2-207 24, 25

UCC §2-209 42

UCC §2-210 64

UCC §2-302 47

UCC §2-305 23, 37, 39

UCC §2-306 13

UCC §2-313 40

UCC §2-314 40

UCC §2-315 40, 41

UCC §2-316 41

UCC §2-318 63

UCC §2-606 28

UCC §2-609 60

UCC §2-614 61

UCC §2-615 62

UCC §2-709 52

UCC §2-710 52, 53

UCC §2-712 49

UCC §2-713 49

UCC §2-714 49

UCC §2-715 49, 52, 53

UCC §2-716 54

UCC §2-717 49

UCC §2-718 55

UCC §2A-504 55, 56

UCC §2A-528 56

UCC §3-305 64

UCC §9-404 64

1. A Roadmap for Contract Law

1. Lucy v. Zehmer, 196 Va. 493 (1954)

1. Facts: Π allegedly enters a contract with Δ for the sale of land. Π says they were serious, but Δ says he was clearly only joking around. Π wants specific performance.

2. Issue: Was there a contract, and is it enforceable?

3. Held: The contract was in good faith and specific performance was awarded. The private intentions of Δ are irrelevant, only the manifested acts.

2. Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 (1995)

1. Facts: Π, an Italian company contracted for goods from Δ w/ a letter of credit. The goods upon arrival were not to spec and Π wasn’t able to use the goods. Π covered with extra expense.

2. Issue: Under the CISG is Π able to recover damages for nonconforming goods?

3. Result: Π was entitled to lost profits, foreseeable consequential damages. Π was not entitled to damages for modifications necessary for cover.

Table 1 Topics, Rules, and Keywords

2. The Bargain Theory of Contract

1. Consideration

3. Definitions

4. A Contract is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement 2d §1.

5. Consideration is the inducement of a contract, something of value given in return for a performance or a promise of performance by another, for the purpose of forming a contract. This is a required element in the formation of a contract.

6. Illusory Promise is a promise so indefinite that it cannot be enforced or which, by virtue of provisions or conditions contained in the promise itself, is one whose fulfillment is optional on the part of the promisor. Not adequate for consideration.

4. Restatement

1. Restatement 2d §71(1) – to find consideration there must be a performance or return promise which has been bargained for by the parties.

2. Restatement §76 - Any consideration that is not a promise is sufficient to satisfy the requirement of §19 (c), except the following:

1. (a) An act or forbearance required by a legal duty that is neither doubtful nor the subject of honest and reasonable dispute if the duty is owed either to the promisor or to the public, or, if imposed by the law of torts or crimes, is owed to any person;

2. (b) The surrender of, or forbearance to assert an invalid claim or defense by one who has not an honest and reasonable belief in its possible validity;

3. (c) The transfer of money or fungible goods as consideration for a promise to transfer at the same time and place a larger amount of money or goods of the same kind and quality.

3. Restatement §79 – A promise or apparent promise which reserves by its terms to the promisor the privilege of alternative courses of conduct is insufficient consideration if any of these courses of conduct would be insufficient consideration if it alone were bargained for.

1. See Petroleum Refractionating Corp. v. Kendrick Oil Co., infra.

4. Restatement 2d §77 Comment (a) – Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise.

5. Restatement 2d §79 - If the requirement of consideration is met, there is no additional requirement of

1. (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or

2. (b) equivalence in the values exchanged; or

3. (c) "mutuality of obligation."

6. Restatement 2d §175 – a contract is voidable by the victim if that party’s “manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative.”

7. UCC §2-306 – Output, Requirements, and Exclusive Dealings

1. A term that measures the quantity by output or requirements means actual output or requirements as may occur in good faith, cannot be disproportionate to a stated or implied estimate.

5. Refraining from a right is adequate consideration.

1. Hamer v. Sidway, 124 N.Y. 538 (1891)

1. Facts: Uncle tells Nephew that if he refrains from certain vices until he is 21, he will give him $5000. Π is the executor of Uncle’s estate; Δ is the assignee of Nephew.

2. Held: Nephew’s refraining from certain vices is a forbearance that amounts to consideration necessary for contract enforceability. The court “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party.”

2. Fiege v. Boehm, 210 Md. 352 (1956)

1. Facts: Π and Δ entered an agreement for which Δ will pay support for her illegitimate child in return for Π not trying him for bastardy. Δ later proves the child is not his and stops paying.

2. Held: Π’s promise not to sue for bastardy even though impossible was adequate consideration for his promise to pay support. There was no evidence of fraud. Giving up the right to take legal action is adequate consideration.

3. Uses Restatement §76(b). A current defense could have used Restatement 2d 175.

3. Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 (1933)

1. Facts: Δ contracted to buy 1.5M G of oil from Π unless Π should stop making that grade of oil. Δ states that the grade of oil is not correct and will not accept further deliveries. (This is during the depression when the price of oil is falling fast.) Π then sells the remaining contract for much less than originally contracted and is suing for the difference.

2. Issue: Δ argues there was no consideration.

3. Held: A benefit to the promisor (Δ) or a detriment to the promisee (Π) is a sufficient consideration for a contract. Under Restatement 79, both need to be sufficient when promisor has alternative courses of conduct. Δ got oil, and Π gave up the right to discontinue producing that grade of oil. Giving up a right is adequate consideration.

6. Options Contracts

1. Firm Offers under UCC §2-205

1. An offer by a merchant which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the stated time (or reasonable time if not stated, no more than 3 months). Must be signed.

2. Restatement 2d §87(a)

1. An offer is binding as an option contract if it

1. is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

2. is made irrevocable by statute.

2. An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

3. Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183 (1973)

1. Facts: