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Contracts Outline
Definition Goals of contract law To place a breached party in the position that he would have been had a contract been fulfilled To allow the economy to function, by encouraging and allowing people to make deals and contracts and further deals based on those deals. Early contract theory, or "subjective theory" based on the notion that a contract was a meeting of the minds (that would be enforced by law), and if there was not a complete meeting of the minds (such as a unilateral mistake) there would be said to be no contract? Modern contract law relies on what is stated, and what is implied based on what a "reasonable person" would belive if they had been a fly on the wall
General Definitions of a contract A contract is a promise or set of promises for the breach of which the law gives a remedy and the performance the law recognizes is a duty Modern contract law relies on what is stated, and what is implied based on what a "reasonable person" would believe if they had been a fly on the wall
It is an enforceable agreement Types of contracts Bilateral contracts (modern and common-law) Promise for a promise Service for money for example
Fully formed, but no duty Rights Right is to get money Duty is to wash car (v.v. for other person)
Unilateral contract Promise for an act One party must fully perform before contract is preformed "I promise to give you $1000 if you will shimmy up to the top of the flagpole." For a unilateral, it is a promise for an act, and one must fully perform before the contract is formed: Examples on tests -- Offers to the public (rewards) {extremely chancy} (e.g I promise to give you $10k if you do something) A unilateral contract requires an act E.g. I promise to give you $10k if you walk across the room and climb the wall The only way one can form the contract is to actually do it
States of Validity of a contracts Valid contract is a valid enforceable agreement Void contracts – NULL FROM THE BEGINNING Contract to do illegal things
Where one or both parties can elect to void the contract (voidable) Impediment to a formation Infancy, insanity
Can be affirmed or voided
Unenforceable Valid contract, unless it is plead that they are unenforceable Examples Violates statutes of frauds, or statute of limitations is over
Performance states of a contract Fully Performed (executed) Not yet performed (executory)
Ways a formed contract can be expressed Expressed From language – language of the contract Written or oral "I orally agree to X" do not have to have a writing some things under the statute of frauds do have to have a writing contracts without writings under statute of frauds are unenforceable unless in writing
Writing performs an evidentiary function This is why we call them a memorandum They render the problem of proof easier
implied comes from conduct performance and conduct implies contract
Constructed contracts (quasi) Not really a contract, but it is a remedy for a contract This is quasi-contractual relief. Constructive anythings are from the law For example discharge If something is discharged the law provides a mechanism for remedying the discharge (i.e. a singer having to give back money if he can’t sing)
Relevant contract law Common Law Contacts For real estate or services Structures to be removed are not real estate Sand and gravel, electricity, crops are codal
If we entered into a contract that involve real estate, or services
Uniform Commercial Code Goods Including movables
Don’t have choice Differences I.e. under code don’t need consideration to modify contract, but under common law one does
Common law does have some differences
Formation of contract Have to ask, "is there a contract"? Do we have contract? -- LACC Legality of object Must be legal Illegal objects include contracts for theft – including TRADE SECRETS! Something that a seller does that the buyer is using for an illegal purpose is VOIDABLE!
Agreement or ascent Offer Willingness to contract Commitment Can’t be preliminary Not just a solicitation A newspaper ad is a solicitation or a preliminary
Can’t "accept" offer Ad can be an offer if one limits the number of acceptances These offers must be revoked by the same or similar means Determination Look to language Must have DESCRIPTION of the good If one says "offer" without description it isn’t an offer Look to surrounding circumstances: Must be a serious offer (not jest or anger)
Minimal essential terms Real estate must have a PRICE AND A DESCRIPTION Doesn’t need a legal description – i.e. "my house’ is okay Specific price not "fair market price" Services Time Duration Task Probably a price to (in common law) Goods UCC says can leave out price and leave out price Can leave out anything except for Quantity! Quantity can be articulated as a number or as a "requirements for output" "Illusory" (not a quantity) is something like "I will buy all I wish or request, or similar."
Communicated (must be communication from offeror to offeree) Three levels of communication required Actual knowledge: offeree must know about offer – not just happened to have coincidentally performed. Not effective until it is known by the offeree Communicated (i.e. by mail – even if not received
Alive Offeror can "suicide" or revoke an offer Revocation of an offor can be direct, or indirect Direct revocation – "I offer you this watch. I revoke the offer" – if it is communicated (i.e. sent through mail), it is still a valid revocation Indirect revocation "I offer you this watch, I offer someone else this watch. When second person accepts, and first person knows (heard, or hears from reliable source) the offer is revoked Offoror can revoke, or offoree can reject Can be terminated by law Things that can’t be revoked Options (paid for contracts) Restatement 45 – unilateral, Can’t revoke an offer after the person starts to perform. Detrimental reliance – knowing that courterparty would rely to their detriment based on what people told them UCC (2-205) Firm merchants (in the subject matter) offer where they put the offer in writing and has a time in it of irrevocability. Needs signature – merchant, offer (writing), words of firmness, and a signature – MAKE IT BINDING LIKE AN OPTION FOR UP TO 3 MONTHS Terminated by the offeree Rejection upon communication or receipt (different levels) actual knowledge revocation and rejections are effective when received (not necessary read) Counteroffer: "No, but I will give you 8" – this terminates original offer, and makes a new offer for 8." If the 1st part refuses, there is nothing on the table. Note – it terminates the old offer "mere inquiry" – would you consider taking "8" – if the 1st par answers 10, and the second says "I offer 10" – acceptance law killing offer (terminates) death or insanity of either party kill the offer destruction of the subject matter kill the offer it has become illegal
acceptance (manifestation of assent) under UCC: can have acceptance either by doing or by promising, or by shipping can do it can ship it if the shipment is going to take a long time, must give notice
can promise to do it note special rule for acceptance can ship non-conforming goods – makes for a simultaneous good
only way to except a unilateral is to do it express acceptances can except via the original means or "any other reasonable way" must be as legal or as legally dependable optionally, it can be faster cannot accept orally, if the offer is by telegram
implied acceptances by conduct and offer is the master of his offer – can have a goofy acceptance cannot have silence as method of acceptance Under common law there was rule of acceptance of unsolicited goods – if you used it, it was an acceptance by conduct. It is out by virtue of federal law! FTC can do this Exceptions to acceptance by silence rule Note: if the parties if the parties agree to acceptance by silence, it is an acceptance Acceptance by silence is acceptable if by conduct, prior relationships have meant that there was a business relationship where a pattern of conduct was viewed as a means of conducting business If one knows someone who does something expects to get paid, there is an "affirmative duty to act"
Acceptance must be to and by proper party Can be offered to a "class" (anyone on this side of the road)
Assignment of offers Offers are not assignable Assignee of options can except Contract rights are acceptable – and options in themselves are contracts.
Mirror image/deviant acceptance (under the common law) Must be same as offer
Under UCC (2:207.1) Must have intention to be bound There is a contract if one says "we will have a contract if the reasonable and prudent person had indicated to him that there is an intention to be bound" It is an additional term or a changed term, yet a contract is formed! "except, but only on the condition that" – is not an acceptance because it is not an intention to be bound
If it a non material alteration and they are both merchants it is an acceptance, unless in the offer it excludes expectances, or it is rejected If there is an intention to be bound, there is a contract
If it is a material alteration and there is a change in warranties we use the offered terms If the parties are not both merchants they use the offered terms Merchants use modified terms in general Non-merchants use offered terms
Mailbox rule of acceptance: " – only mailbox rule also for telegrams, and bikes must prepay the postage correct address has to be right address operative upon dispatch (level 3) doesn’t have to get there
a merchant can opt out of rule of acceptance exceptions to mailbox rule exercise of options must be received
common-sense exceptions if one received the rejection first, than acceptance isn’t valid crossing of offers
auctions – exception auction is offer can pull back bids until gavel UCC additions (to goods auctions)
Not just bidding – other types of auctions Silent auctions Wink and twitch method
Close cases Common law – jury Code – auctioneer decision
Consideration Promise must induce a current exchange of promises (the bargain for element0 Consideration doesn't have to be the only thing bargained for -- but should play some role Consideration permantly obligates the promisor (as opposed to a uniltateral contract) Not a reward or a gift
Promisor must offer some determinant (or promise not to do something that he has a legal right to do) If there is a gift that requires a determinant it is bargained for Must be a bargain for there to be consideration
One needs consideration to modify the contract If one is under a pre-existing duty to do something, one needs contract
Exceptions to pre-existing legal duty an determinant If there is modification of deal on BOTH SIDES Honest dispute as to what the duty was Could be entitled to additional compensation
UCC: 2.209 (1) – consideration in UCC is unnecessary! Don’t need consideration to modify contract under code Can be modification of contract after sale, and it is binding
Other exceptions in restatements to pre-existing legal duties Preexisting legal duty to third party Additional compensation for doing something one can collect
Unforeseen circumstances (Only in two fact patterns) I.e. quicksand, needing more money (in the restatements) – in majority one couldn’t get the money E.g. bedrock. needing more money (in the restatements) i.e. one couldn’t get any money
Must be mutually binding and not illusory, (mutual) It is illusory if it is an "I will feel like it" type unrestricted discretion thing If there is some restriction, it is mutual
Requirement or output, is not illusory Satisfaction case is not illusory Exclusive agency goes with and best efforts (binding) It is illusory to say ‘either side can have out if one side says they want out It is not illusory if either side can have out by giving 10 days notice
Notification requirement that becomes the consideration Code does away with consideration in a number of respects Some jurisdictions include "seal" as doctrine
Promissory estopple – detrimental reliance If it would cause a reliance not to enforce something Can be estopped from denying promise on the basis of new consideration Estopped from amending consideration Even though you are not getting anything, you are getting what you would call consideration Detrimental reliance – others relied on you to their detriment
Can be either substitute for consideration Detrimental reliance Seals Codal under UCC
Capable Parties Incapacitated party has voidable contract When an infant becomes a teen he can ratify or affirm Incapacitated party is bound for necessities of life
Intoxication
What are its terms? Sometimes express, sometimes implied
Has there been performance ? have the parties done what they supposed to do have their been discharged has their been a breach what are the remedies for the breach The nonbreaching party often has a choice of remedies as a result of the breach. Specific Performances (equity) Rescission and restitution Quasi-Contract Tort action Election of Remedies (as opposed to expectancy damages)
Defenses to formation Possible that the series of promises in a contract can be lied about (in common law England) Explains what has to be in writing Statute of frauds Some promises within the statute of frauds require a writing Six promises that require a writing (MYLEGS) Marriage Mutual promises to marry can be oral (if you will marry me, I will marry you) If you will marry me I will do something for you THESE REQUIRE A WRITING Court cannot order one to marry him
Year (cannot be performed within a year A promise which cannot be performed within a year Lifetime can be oral b/c the wording of the statue of frauds cannot be performed within a year Promise that only last two minutes and requires a writing if the person uses the date of the contract until when the contract begins executing We use the date of the contact, not the date on which performance begins
Land Leases are unenforceable for statute of frauds purposes
Executors promise to pay estates debt Promises to pay estates desk to pay own desk from one’s own purse (the executor’s promise) If she makes a promise to pay the estate’s debt from the estates funds, that can be oral
Goods of $500 or more $500 – as modified! So, a written thing can be enforceable if it is modified down to $500 telegram trick if something was oral and unenforceable – but a cancellation mentioned the deal, the contract is now in writing! I.e. – must have had the full details to show that there was a deal
Suretyship Debt of another must be in writing.
Exceptiosn to the statute of frauds SWAP (what you can swap for the writing) Specially manufactured goods are enforceable if they are oral Written Merchants Confirmation – if they are both merchants, and one sends the confirm - -it is a sufficent memo to satisfy the stateute of fraud… can reneg or contest in ten days! Admissions – admissions make a deal enforcable Only can (in KY) take the "privildge of self-incrimination" There is no privildge of statute of frauds
Performance To the extent that one has performed, it is removed from the statute of frauds There was a deal if one paid for them!
Mistake Uniltaal mistake is not a defence We don’t allow "snap-ups" Knew, or should have know that something was a mistake, it is not an offer
We just don’t don’t allow the non-mitaken party to snap it up Bilateral mistake or ambiguity than it is not a contract! Both sides have a mistaken impression of what the good it – it isn’t a contract! Ambiguity -- Peerless case where both are thinking different things
Fraud Fraud is factum Switched documents
Voidable – knew what one was doing, but you did it because of the fraud Misrepresentation of the material fact!
Durress Void durress: gun to one’s head Voidable: sign the contract or I will make things unpleasant… blackmail
Unconscionable Question of law for the court (doesn’t go to the jury) Court that finds a contract unconscionable can bluepencile, or throw it away It is unconscionable at the time that the contract begins, not how it turns out! Examples Inconspicuous risk shifter Subtley shifts all risk division onto one party without everyone else understanding
Contract of adhesion Take it or leave it 90 clausses – where there was no bargaining position
Unreasonable covance not to compete Every single profession except for law permits convance not to compete
Is it possible for someone who is not a contracting party to have contractual duties Third party beneficiaries A contact where a 3rd party benefits – the payment goes to someone else Types of 3rd-party beneficiaries Creditors 3rd-party creditors
3rd-party donee beneficiary insurance
incidental, unnamed (no rights) ie: unnamed people who benefit from commerce
six rules involving 3rd-party beneficiary law intended promisees can hold the promissor only the party that is making the promice to benefit the third party is making the promice – only that party is the promisor 3rd party beneficiaries and donees can make the promices
promisor can use any defence he has can claim breach
if you were a creditor beneficiary, you can also sue the promisee on the debt! Donees can’t sue
Unnamed, incidental beneficiaries have no contract rights Modication possible (without 3rd party beneficiary’s consent) until rights VEST now it is impossible to change something without their permission vests when the third party knows and act thereon
promisee can also enforce it against the promisor
assignment of rights and delegation of duties is it possible for two contracting parties – A &B to have a contract, and then, subsequently, assign their rights to Ms. C or delegate duties to C can assign rights with three exceptions prohibited in contract by law national security
substantial change (unique personal service) contract to paint portrait production quantity assigned to radically different type of consumer
when a right is assigned the obligor is bound the assignee owns the right the assignor does not
successive assignments where there is successive assignments of the same contract right the first irrevocable assignee prevails the first guy who gave consideration substitutes for consideration are assignments in writing that are delivered – a completed gift assignee relies on it, and changes his position assignee gets indicia of ownership (like a check)
exceptions where a subsequent assignee (who didn’t know) will prevail -- 4 horsemen of assignments already paid – got money and spent judgment indicia of ownership novation (substituted party)
assignment of duties prohibited by and large, delegation of duty is exactly the same prohinited by law unique personal service
delegable and doesn’t need to be in writing obligee must except and the delegator remains liable technically the obligor become a surety delegator remains liable the one who does the delegating, I refer to as the delegator delegate the duty to Joan delegator, remains liable
this is different than a novation a novation is way of discharging a novation for a substituted contract accepted on both sides
Performance – Conditions – terms UCC’s methodology for determining the contract terms Expressed Implied If they had an installment contract, what were the previous contracts (installments) Have the parties entered into prior agreements? What if there were no prior dealings? Is there a trade usage Codeal presumption If the contract did not say said $1k, and "we don’t care about prior dealings, etc." then we don’t’ look at prior performance Trade usage
Constructed contracts (quasi)
Rules of contract construction Risk of loss rules (guidance for the court) writing Handwriting is the best manifestation of intent Typewriting is 2nd best
Print is 3rd Words over figures
Construe contracts against the maker (?) Code risk of loss rule is dealing with non-carrier cases If the seller is a merchant it passes on possession If the seller is not a merchant it passes on tender Ie: if it is a new building that is destroyed, it is on the builder, if it is an old bulding, it is on the owner
Parole evidence rule If there is an integrated memorandum – nothing in the way or writing or oral comes into an integrated contract Sometimes when parties have a writing, whether they are required to or not, we do not care, in either case, if they want a memorial of their agreement, want the writing to be the only evidence of their agreement When parties intend their writing to embody their entire agreement When the parities intend that the contract be the only evidence of their agreement, then the court may not admit evidence outside the writing about the terms of the agreement
Can amend an integrated memorandum Won’t prevent frauds or defects Can also show course of performance, use of dealings, etc. etc. We do put in formation defects, fraud can be shown, etc. etc.
Conditions "an event, other than passage of time, that creates or limits an obligation" can come in by conduct, law, or implied they are promice modifier example for the $10 one will wash a car IF the temp is about 60 contract with insurance company for instance – with promise to keep list of properties there are promices for promices one will collect the full 100k if there are minor immaterial diffreences if there is an "IF" clause, there will be no payment
where you have conditions, unless they occurr, or they are excused, there is no obligation to perform differentiate by types (all conditions are entirely draftable) by drafting can be excuse language by drafting from the law "this contract is subject to the law of Illonois"
conduct (implied) by the law by timing (from conduct) where one parties performace preceeds the other, the first is a contract proceedant to the 2nd this is simple a condition that must occur a duty arrises Plaintiff has burden of proof of this condition happening I will do X before you do Y
Conditions subsequent Cut off existing duty I will pay you X so long as you are in law school The burden of proof is on the defendant to show his duty was cut off
conditions concurrent I will wash your car tomorrow if the temperature is above 80 Preceedant starts it, subsequent cuts it off If you have a condition, unless that condition occurs or is excuded, you don’t have to perform
where one parties performace takes longer, the longer is implied to the shorter
was the duty discharged (excused) for excuse of conditions total satisfaction for expressed terms substantail satisfiaction for implied conditions
type of excuse prevention I will pay you X if I am satisfied and won’t look at it – PREVENTING THE CONDITION FROM OCCURING If one agrees to buy a house IF oen does something
anticipatory breach/repudiation (note: performance is still possible) one is to wait – the other is to sue immeadiately There is also a tort called conversion which the damages are are the fair market value of the property on the day of the conversion There is a conflict in the law about deciding exactly when a breach has occurred – under classical contract law one could decide the point at which they see a breach (from notification of it, up unto the expected date of delivery.) This would mean that Acme (the breached party wouild not be allowed to go and cover -- under common law, the date of breach is the date of delivery. Under the UCC, one has the choice of waiting from the date of repudiation to cover or collect. Note: a repudiation can be withdrawn after a notification until a cover. Also, if the other party cancels the contrct after a repudiation , it cannot be withdrawn If you don't cover -- the buyer may not recover any costs saved because he covered! (2-712) covering does not preclude other remedies All courts seem to measure the cover price from the date of repudiation -- even it it is calculted from the date of delivery Classical contract law Classical contract law was what develped in the 2nd half of the 20th century in G and K Classical contract law is ammoral and it doesn’t care about moral quality of the breach idea behind classical contract law is that things should be simple and clear under classical contract law, it would be measured from the date of cover it doesn’t do anyone any good to encourage people to be that way, if you rescue them from their own passivness – was trying not to shift risk when the parties have not done it themselves Neo-classical contract law stance Instead of calling it a breach, they called it an anticipatory repudiation once a party gives notice, breached party is free to go out and "cover" Acme is free to go out and buy wheat from the moment two sale rule of UCC: the seller, Under UCC can resell the goods, (esp. Unique goods), however, since it is assumed that the seller would have made the profits from BOTH of the sales, then reasonable expenses in reselling (including overhead) can be deducted from the a breach two sale rule the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages (costs incurred by the non-breaching party, after the breach, in an attempt to avoid increased loss to the breaching party) provided in this Article (
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