Contracts Outline
Professor Scott
Fall 1998

I. Chapter 1: Introduction to K’s
	A. Employment at will - either party can terminate at either time as long as it is not in bad faith (Monge).  Later case in NJ required both bad faith and conflict with public policy to show breach (Cloutier).
	B. Litigation is expensive and causes adversarial relationship - try to avoid.

II. Chapter 2: Classical Contract Law
	A. Mutual assent - must be a manifestation of assent between the parties... meeting of the minds.
		1. K is binding absent fraud, duress, or mutual mistake - a unilateral mistake does not void a K. (Eurice Bros).
		2. Parties must have capacity to K (cannot be infants (R'14) or mentally incapable (R'15)).
		3. In K creation, parties are not obligated to disclose information unless special relationship (St. Landry Loan)
		4. Executory K - K without any performance
	B. Offer
		1. Definition - manifestation of willingness to enter into a bargain, where other party merely needs to assent to conclude bargaining (R2d'24)... offeree merely needs to say “yes”.  If further manifestation of assent needed by offerer, then it is merely a solicitation to negotiate (R2d'26 & Lonergan).  Court will not find offer without clear intent.
		2. Certainty - offer must contain material terms... terms must be certain. (R'33)
		3. Revocation - offer can be revoked at any time before acceptance.
			(a) An offer is not irrevocable without separate consideration (Normille).
			(b) Notice of revocation does not need to be directly stated by offerer... third party notice is effective if from a reliable source (Normille).
			(c) Revocation can be implied... it does not need to be explicitly stated (Normille & R'43).
	C. Acceptance - power of acceptance created by offer
 		1. Mirror image rule - acceptance must match offer.
			- Counter-offer -  different terms in response indicate counter-offer... rejects and terminates old offer, and creates new and different offer (Normille & R'59).
		2. Acceptance is also terminated by lapse of time or by death or incapacity of either party (R'36).
		3. Mailbox rule - acceptance is effective when mailed; revocation is effective when received (Henthorn & R'63).
			(a)  Notice must be addressed properly, but acceptance does not need to ever be received.
	  		(b) Acceptance under an option K is not effective until received (R'63(b))
		4. Offer can set rules of acceptance, which must be followed to make acceptance valid.  If not expressly required, reasonable method/place/time is allowed (R'60).
		5. Mere silence does not normally constitute acceptance (R'69).  Exceptions listed in section (benefit taken (1a), stated in K (1b), and custom (1c).
	D. Consideration - one-sided promises are not enforceable K’s... must be obligation on each party.  Consideration is within terms of offer and acceptance, not reliance.
		1. Tests
			(a) Bargained-for exchange - negotiation resulting in the voluntary assumption of obligation by one party upon act or forbearance by the other (Baehr).  Act or forebearance must benefit the offerer... does not need to be economic benefit (e.g., peace of mind or gratification)
			(b) Benefit/Detriment - either benefit to promisor or detriment to promisee (Hamer v. Sidway) - minority view - court probably would not follow it today
		2. Forbearance of  legal right, including suing (Baehr), is legal consideration (Hamer).
		3. Inadequacy of consideration will not invalidate a K (Batsakis & R'79).  Only invalid if consideration has no value. A required condition of a promise is not consideration if no benefit to promisor (e.g., tramp buying coat example) (Plowman).
		4. Past performance is not consideration (Plowman).
		5. Moral obligations are not consideration (Plowman).
		6. Consideration needs to be known by both parties (Baehr).
	E. Unilateral K’s
		1. Definition - exchange of promise for performance (e.g., if you find my dog, I will pay you $100).  Bilateral K is exchange of promise for promise.
		2. Acceptance and consideration upon full performance... no K or obligation until full performance.
		3. Partial performance - traditionally, offer revocable until full performance.  Under R'45, partial performance or tender eliminates offer’s ability to revoke (but no obligation until full performance).
			(a) Not always clear what beginning of performance means... must define act.
			(b) If offerer attempts to revoke before complete performance then anticipatory breach.  
		4. Difference between unilateral K and conditional bilateral K relates to intentions of parties.  Unilateral K’s are more immediate, involve less skilled work, and not highly significant effort.  Concept of unilateral K is that either party can simply walk away.  Courts biased towards finding bilateral K... K normally assumed bilateral unless proven otherwise.
		5. Reasonable notice of performance may be required in some circumstances to prevent erosion of offer’s obligation under K (Bishop v. Eaton).
	F. Agency - agent bound to act in interest of principle
		1. Actual authority - real authority granted by principle.. can be express (specific) or implied (general).
		2. Apparent authority - third party reasonably believes that agent has authorization.

III. Chapter 3: Obligation in the Absence of Exchange
	A. Restitution - based on theory of unjust enrichment
		1. Emergency Restitution
			(a) Preservation of health or life, Restitution R'116.  Requires:
				(1) Necessary action.
				(2) No reason to believe that the person would not consent.
				(3) Impossible for D to give legitimate consent.
				(4) Intent to charge.
			(b) Preservation of another’s property, Restitution R'117.  Normally for tangible prop
				(1) The services were not made in breach of duty to the other (no negligence).
				(2) No reason to believe that the owner would not consent.
				(3) Could not get consent from owner in time to save property.
				(4) Intent to charge.
				(5) Property was accepted by owner afterwards.
		2. Non-emergency restitution (Watts v. Watts)
			(a) Benefit conferred by P to D
			(b) Appreciation of benefit by D
			(c) Acceptance of benefit by D that would be unjust to retain
				- Courts reluctant to look at family situations.  Family promises presumed to be gratuitous.
		3. The remedy for restitution is the value of the benefit conferred.  Although out-of-pocket costs are often used for evidence, it is not necessarily the benefit conferred.
	B. Promissory Restitution - promise made to compensate after act has already been performed.
		1. Promise is binding to the extent necessary to prevent injustice (R'86 (1))	
		2. Promisor must directly receive material benefit from promisee (third party cannot make promise) (Webb v. McGowin)
		3. Promisee cannot be the cause of services needing to be performed (Webb v. McGowin)
		4. Promise must not be gratuitous (R'86 (2)(a)) - significant time lapse between event and promise and partial performance of promise are both evidence that promise was not gratuitous (Webb)
		5. Promisor must be unjustly enriched (R'86 (2)(a))
		6. The value of the promise cannot highly disproportionate to the benefit (R'86 (2)(b))
	C. Promissory Estoppel - protection of unbargained-for reliance - R'90
		1. Elements: (R'90 & Danny Dare)
			(a) Promise - an offer is more than a promise.. if offer, probably promise
			(b) Promisor reasonably expects promisee or third person to rely on promise 
			(c) Detrimental reliance that is reasonable
				(1) Occasionally read broadly as any action taken by the promisee that he was not otherwise required to perform (Danny Dare)
				(2) Acceptance of a duty can be considered reliance - future detriment (Allegheny)
				(3) An agent must have at least apparent authority (Universal Computer Systems)
			(d) Injustice by not enforcing promise
		2. Promise to a charity or a marriage settlement is binding without proving that the promise caused the action (R'90 (2))
		3. The remedy for breach is limited as justice requires (R'90 (1)) - typically damage from reliance - out of pocket costs.  Although rare, courts may give expectation damages in commercial K’s... lost profits (Universal Computer Systems)

IV. Obligation in the Absence of Complete Agreement
	A. Limiting the offerer’s power to revoke
		1. Promissory estoppel (R'87 (2)) - offer that foreseeably induces substantial action or forbearance before acceptance is binding as an option K to the extent necessary to prevent injustice.
			(a) Usually only used in construction K’s (Drennan) - promise by subcontractor to hold open offer until general bid is either accepted or rejected.  Hard to prove substantial detrimental reliance for commodity goods (can always get another supplier).
			(b) Limits on this use of promissory estoppel: (Drennan)
				(1) Contractor can’t shop around or reopen negotiations... must accept offer immediately.
				(2) Mere estimates are not firm bids... not a promise
				(3) If subcontractor expressly states in bid that it is revocable, then no PE.
				(4). If contractor knew or should have known that subcontractor made an error, then it is not reasonable for the contractor to rely on the bid.
		2. Firm Offer - UCC - '2-205 - All of UCC intended for sale of goods
			(a) Elements:
				(1) An offer as defined by common law
				(2) by a merchant - person who deals in these kinds of goods or by occupation holds himself out as an expert or has an agent who is an expert ('2-104). Only offerer needs to be a merchant.
				(3) for the sale or purchase of goods - goods are all things movable at time of identification to K other than money and securities ('2-105)
				(4) in signed writing - signature required for authentication of party
				(5) which by its terms gives assurance that it will remain open
			(b) A firm offer is irrevocable for a reasonable amount of time, a maximum of 3 months ('2-205) (less if a date expressly stated in offer or contingent on a expressly stated specific event (comment 3)).
				(1) Offer is effective upon receipt.
				(2) If consideration included, option can be for more than 3 months (comment 3).
			(c) Remedy usually better than normal promissory estoppel because it creates K obligations and damages.  Also better than trying to use promissory estoppel to hold offer open because you do not need to prove reliance for the first three months.
			(d) A firm offer can be separated between goods and services, so that offer for goods are irrevocable, but services are not.
			(e) Requirements K - buy everything from supplier.. quantity not specified.  Must be mutual obligation (buyer obligated to buy from this seller) (Shoney’s & UCC '2-306 comment 2).  Quantity demanded or supplied cannot be disproportionate to stated estimate or normal amounts '2-306(1)). 
 				- Without requirements K,  each PO is acceptance of new offer with its own terms - firm offer not renewed (Shoney’s)  Logically could view each PO accepted renews original firm offer for another three months, but no case law.  Firm offer can be renewed (comment 3).
		3. New York General Obligation Statute '5-1109 - extends UCC '2-205 firm offer
			(a) Applies to all types of contracts - only use when not covered by UCC
			(b) Offerer does not need to be a merchant
			(c) Can last longer than 3 months... expressly stated time or reasonable time if no time period is stated   
			(d) However, by its terms, the offer is required to explicitly state that it is irrevocable or will be held open for a stated time.
	B. “Battle of the Forms” - UCC '2-207 - standard form contracts
		- Last shot rule under common law - last form wins because everything before it was a counter-offer.. any change in obligation of parties was considered material (Poel)
		1. Under UCC, acceptance with different or additional terms operates as acceptance to the original terms unless the acceptance expressly makes acceptance conditional upon assent to the new terms ('2-207(1)) - first shot rule
			(a) conditional acceptance must be clearly conditional - would not perform otherwise.
.		2. Additional terms are proposals for additions ('2-207(2))... not added unless expressly (or impliedly) agreed to. However, if both merchants new terms part of K unless: 
			(a) offer expressly limits acceptance to its own terms ('2-207(2)(a))
			(b) they materially alter it ('2-207(2)(b)) - material alteration if either surprise or significant hardship (Dale Horning) - most remedy limitations are material.
				- Non-material alterations listed in comment 5: excuse for acts of god, excuse by presupposed conditions, reasonable limitation of time for complaints, limitation of right of rejection for goods that meet customary standards, interest for overdue invoices, sub-purchaser (secondary customer) inspection .  
			(c) notification of objection to the new terms have already been given or is given soon after notice of them is received ('2-207(2)(c))
		3.  “Knock-out” rule - if the parties conduct clearly establishes a K, then the K consists of agreed upon terms. The rest of the terms are not included in K and court uses UCC gap filler portions to determine legal outcome ('2-207(3)).  Indemnification not implied by gap fillers.
	C. Agreement to agree - general agreement with material term not included.
		1. Under common law (R '33), if material terms of K missing, no K.
		2. UCC '2-204(3) - K with indefinite terms can be binding if parties intended to be bound and a reasonable basis for a remedy exists.  The more vague the terms, the less likely a K will be found.
			- Factors looked at to see if there is intent to K: express agreement on all terms; if K type usually put in writing; number of details included and required; dollar amount involved; commonality of agreement; if normally form K; either party takes action in preparation for performance or negotiations (Wilmington Trust Co).
		3. UCC '2-305(1) - open price will not prevent enforcement of K if parties intended to be bound.
			(a) Price is “reasonable price” if price is not mentioned (1)(a), left to be agreed upon later (1)(b), or predetermined formula for price or arbitrator (1)(c)
			(b) If price is supposed to be set later by one party, they must do so in good faith ('2-305(2))
			(c) Wrongful interference by one party with the price fixing machinery justifies giving the other party the right to cancel or set a fair price ('2-305 comment 5)

V. Statute of Frauds
	A. Generally - requires that certain contracts be made in signed writing to be enforceable
	B. Applies to: (R'110)
		1. Real Estate (1d)
		2. Sales of goods over $500 (2a) - Under UCC '2-201
		3. Sales of securities (2b)
		4. Guarantees (1b)
		5. K’s that cannot be fully performed in one year (1e) - must be impossible to complete (Freedman v Chemical Construction Corp.)
	C. Signed writing
		1. Requirements for the writing (R'131)
			(a) signed by party against whom enforcement is sought. Other signature not required.
			(b) identify subject matter of K (R'131(a))
			(c) indicate that a K has been made (R'131(b))
			(d) state the essential terms of K (R'131(c))
		2. Signature simply intended to authenticate parties, not show intention to enter into K (R'134)
		3. Memo can be in multiple documents.  If one is signed and the other is not, the unsigned one is admissible as long as it clearly relates to the same transaction or subject matter (R'132 & Crabtree)
		4. Writing can be made after the K and does not need to be memorandum of K (e.g., payroll voucher)... writing does not need to be specifically contemplated (R'133)
	D. Ways to find K even when SOF not satisfied
		1. Partial performance - only allowed for real estate where equitable relief is sought... injustice can only be avoided by specific performance - not allowable for pure monetary damages (Winternitz)
		2. Promissory estoppel under SOF
			(a) Can be used to enforce agreement that does not meet SOF if injustice can only be avoided by enforcing the promise.  Remedy is limited as justice requires. (R'139 & McIntosh)
			(b) Determining need for enforcement to avoid injustice depends upon:
				(1) adequacy of other remedies (R'139(2)(a))
				(2) definite and substantial reliance (2b)
				(3) extent to which reliance provides evidence of K (2c)
				(4) reasonableness of reliance (2d)
				(5) foreseeability of reliance (2e)
	E. Sale of Goods over $500 under UCC '2-201
		1. Requirements: ('2-201(1))
			(a) Writing must evidence a K for the sale of goods
			(b) Must be signed - signature used for authentication
			(c) Quantity is the only term that cannot be missing
		2. Getting around SOF under UCC
			(a) Oral admission of K eliminates SOF as a defense - evidence of existence of K - only liable for quantity that is admitted to ('2-201(3)(b))
			(b) If payment made and accepted or the goods were received and accepted, then partial performance - K valid for quantity of goods paid for or accepted ('2-201(3)(c))
			(c) Specially manufactured goods - if either substantial beginning of manufacturing or commitments for procurement of goods, and under circumstances where goods clearly belong to buyer, then K found, but no quantity limit ('2-201(3)(a))
			(d) If both parties are merchants, when the other party fails to answer to a written confirmation of a K within 10 days of receipt it is equivalent to a writing - eliminates ability of party that does not respond to claim SOF as a defense, but K must still otherwise be proven ('2-201(2))	 

VI. Principles of Interpretation
- Interpreting the meaning of a term in the K
	A. A court can find that no K exists if clearly no meeting of the minds (R'201(3))
	B. P has burden to prove its interpretation (Frigaliment Importing)
	C. Interpreting ambiguous terms
		1. Court looks towards what each party knew about the other’s interpretation. If one party (a) knew or (b) had reason to know other party’s interpretation and the other did not (a) know or (b) have reason to know, court will find in favor of ignorant party (R'201(2))
		2. Court can simply define the term itself (R'204)
		3. Court looks to find each party’s purpose (R'202(1))
		4. Writing is interpreted as a whole and all parts of same transaction are viewed together (R'202(2))
		5. General prevailing meaning of word (R'202(3)(a))
		6. Usage of trade (R'202(3)(b))
		7. Other evidence of intent - profit margins (Frigaliment Importing)
		8. When repeat transactions, if party did not object to term used first time, then interpretation given great weight (R'202(4))
	D. Standards of preference
		1. prefer to give legal meaning to all terms (R'203(a))
		2. express terms > course of performance > course of dealing > usage of trade (R'203(b))
		3. specific and exact terms > general language (R'203(c))
		4. separately negotiated or added terms > standardized terms (R'203(d))
		5. interpretation that favors the public interest is preferred (R'207)
		6. Interpreted against draftsman, particularly when form K or significant variance in bargaining power (R'206)
	E. Maxims of interpretation: (Patterson, Interpretation & Construction of K’s, Columbia L.Rev.)
		1. Words of K are taken in context.
		2. General terms combined with specific ones will refer to similar types as the specific ones.
		3. Exclude additional things when not included in specific terms and no general terms used.
		4. Courts prefer to find valid K if possible.
		5. Ambiguity is construed against drafter... usually only if significant difference in bargaining power or an adhesion or form K.
		6. Interpret K as whole... apply intent and meaning throughout the entire K.
		7. Consider the purpose of the parties.
		8. A specific provision is held as an exception to a general one if the two conflict.
		9. Handwritten or typed provisions control printed provisions.
		10. Prefer interpretation which favors public interest.
		- Also plain-meaning rule - look at terms on their face.
	F. Adequacy of performance
		1. Reasonable person standard when K involves commercial quality, operative fitness, or mechanical utility (Morin Building Products)
		2. Subjective standard when K involves personal aesthetics or fance (e.g., a portrait)... but rejection must be in good faith (Morin Building Products)
		3. If K expressly states standard, then that standard will be used (Morin Building Products)
	G. Reasonable expectations doctrine - rarely used... mostly in insurance K’s
		1. Applies to adhesion K’s where clause further frustrates reasonable expectations of parties (C&J Fertilizer)
		- Adhesion K - standard forms, signficant disparity of bargaining power, and take it or leave it offer.  Cannot have other alternatives.
		2. Test for whether term frustrates reasonable expectations of parties (C&J Fertilizer)
			(a) term is bizarre or oppressive, or
			(b) term eviscerates nonstandard terms explicitly agreed to, or
			(c) term eliminates dominant purpose of K