Mutual Assent
Offer
Acceptance
Rule for most cases
Special offer rules
How to accept (requirements)
Communication of Present Commitment
Termination of power to accept (see other chart)
Manifestation of Present Commitment
By the offeree to the offeror
To the terms
Proper Manner
Unilateral
Bilateral
Silence as acceptance
Rules to determine manner
Performance to Accept
Promise to Accept
Reasonable person test, looking at:
Language Used
Context in which language used
&
Advertisements, Circulars, etc.
GR: Not offers except with specific offeree or a limited qty
Requests for Bids
GR: Not offers and considered invitations to offers
Letters of Intent
GR: Not offer unless party makes it clear they are to be bound
Offeree takes benefit
Certainty of Terms Required
Parties
Subject Matter
Rule if doubtful whether unilateral or bilateral?
Bilateral
Reason to believe silence is accepted
Previous dealings have allowed silence
Acts inconsistent w/ offerror's ownership
If Offer is prescribes manner
If Offer suggests manner
If Offer is silent re manner
Must comply
Any reasonable manner
Any reasonable manner
Price Quantity
(Common Law)
Not Required (Use as Evidence of Contract)
Time
ONLY in the following situations
Place
Interpret language to determine which
Last Updated: 10 December 2008
Termination of the Power to Accept
Revocation
Rejection
Death or Incapacity
Manifestation not to Accept
Effect: Terminates power to accept
Lapse
CounterOffer
GR: Time stated in offer or reasonable time
Rule for face-toface GR: offer lapses at the end of the conversation
Direct Revocation
Indirect Revocation
Elements
Irrevocable Offers
UNLESS
Defined: Offeror takes definite actions inconsistent with an intention to enter into the contract
Contrary intention is expressed by either party
Offeree manifests intent to take it under further OR advisement
Elements
Inconsistent Act
&
Reliable Information
Offer
Bilateral
Unilateral
Option Contract (Trade $ for time)
Offeree starts performance (Creates an option contract)
From the offeree to the offeror
Relating to the same subject
Proposing Different Bargain
Firm Offers (U.C.C.) Offers between merchants to buy or sell goods in a signed writing which gives assurance that it will be held open is not revocable for lack of consideration during time stated or reasonable time (not to exceed 3 months). Last Updated: 11 December 2008
Consideration
GR: Bargained-for exchange
Recurring Problems
Forbearance (Withhold some legal action)
Invalid claims are good consideration, if:
GR: Forbearance is good consideration
Plaintiff asserts claim in good Faith
&
Pre-Existing Duty Rule
Adequacy
GR: Courts will not usually inquire into the adequacy of consideration, except:
Claim has a reasonable Basis
Like-Kind Exchange
GR: A party who agrees to do what he has already legally obligated himself to do has given no consideration
Illusory Problems
GR: Agreeing to do what one has already done in the past is not good consideration
GR: Promises cloaked in consideration and are actually one-sided is not good consideration
Elements
UNLESS
Addition of Genuine New Duties
Nominal
Moral & Past Considerations
Insufficiency (items not capable of being owned)
Settlement of a Genuine Dispute
Minority Rule: Unforeseen change in circumstances and the extra compensation must be fair
Promise
Free to perform at promisor's own discretion
Promise cannot restrict promisor's discretion by either:
Good Faith Rip & Tear Contracts
U.C.C.: No Pre-Existing Duty Rule (see U.C.C. § 1-103 Duress)
OR Reasonable Efforts
OR Reasonableness Last Updated: 03 December 2008
Promissory Estoppel
Elements See Restatements (Second) Contracts § 90
Uses
#1 As a substitute for consideration Promise
&
Promisor should reasonably expect to induce action or forbearance
&
Promise does induce such action or forbearance
&
Injustice can only be avoided by enforcing the promise
EXCEPTION A charitable subscription and marriage settlement is binding without proof that the promise induced action or forbearance
#2 As a substitute for a writing required by a statute of frauds
#3 As a way of making bids (offers) irrevocable
#4 As a way of policing unfair negotiation behavior
Measure of Damage The court has the discretion to granting partial or full enforcement. The remedy granted for breach may be limited as justice requires. In other words, sometimes a party may be limited only to reliance damages.
Last Updated: 20 January 2009
Defenses
Undue Influence
Duress
Traditional Duress
Wrongful Act
Threat or use of violence, captivity, or other wrongful act or threat
Precludes Exercise of Free Will
Causation: The threat or use subjugated victim's will
Statutes of Fraud
Deception
Mistake of fact by both parties (substance, unconscious ignorance)
Economic Duress
Wrongful Act
Threat of breach in bad faith
Illegality
Mistake
Mistake has a material effect on K exchange
Mistake as to the basic assumption (quality, function, purpose)
Procedural (Process)
Absence of meaningful choice
&
Considerations: 1. Take-it-or-Leave it 2. Opportunity for legal advice 3. Legalese 4. Deceptive Sales
No feasible alternatives exist
Deception
Substantive (Terms)
OR
Precludes Exercise of Free Will
No practical legal remedy exists
Unconscionability
Gross inequality of bargaining power
"Shocks the conscience of the court" Extremely Unfair K Terms
Think Categorical: 1. Wealth 2. Education 3. Experience 4. Access to legal advice
Argument: π could have said "no"
Assumption of Risk Legitimate reasons to threaten breach
Contract allocates risk to a party
OR
Examples
Other party breached
Change in Circumstances
Considerations: 1. Marketplace 2. Parties Respective Risks 3. Competition
Party has a good contract defense
Party contracts knowing that she has limited knowledge of the facts (conscious ignorance)
OR Court allocates the risk to the party because it is just to do
Last Updated: 10 December 2008
Remedies
Damages
Coercive Equitable Remedies
Liquidation (Agreed) Damages
Restitution (see separate chart)
(Specific Performance)
(see separate chart)
Measure
(see separate chart)
Limitations
Rest (2d) § 347
Avoidability
Foreseeability
GR: Damages based on harms that a party could have evaded without reasonable burden, risk, or humiliation are not recoverable.
Arise in the ordinary course of events (naturally flow)
OR
Certainty
Special Circumstances
EXISTENCE
AMOUNT
∆ must have a reasonable reason to know
Prove damage actually occurred because of the breach
Prove the amount of damages by submitting enough evidence to allow a reasonable estimate
Additional Rules 1. Construction: After notification of a breach, the π must reasonably stop performance. See Luten Bridge. 2. Employee: Employee need not take an inferior job to address a wrongful termination. See Hussy and Parker.
General Damages (Benefit of the Bargain)
+
Special Damages
Reliance
Essential: Money spent preparing or performing a contract
OR
Situations where you can receive reliance only damages
-
Costs & Losses Avoided (Expenses Saved)
Consequential
Incidental: Money spent in anticipation of a contract and dealing with breach fall-out
&
New Business Rule: A new business can never claim lost profits damage due to a breach. (Only applies to some jurisdictions.) Argue what constitutes a new business.
Additional Rules 1. Emotional Distress: Only recoverable for breach when a high level of foreseeability is present. 2. Apply & Distinguish Cases - Ford (Tractor Light): Expect some damages, but actual damages are disproportionate to what was foreseeable. - Boiler: Only recover damages that are foreseeable. - Driveshaft: ∆ only responsible for damages knows or should have known.
1. Property damage 2. Personal injury 3. Lost resale profits 4. Lost use profits
1. Benefit of the bargain too uncertain. 2. Contract is a losing contract. 3. "Break-even" contract. 4. Public Policy. 5. Promissory Estoppel.
Last Updated: 10 May 2009
Three Steps in Damages Analysis - See Restatements (Second) § 347 Step 1: What kind of breach did the defendant commit? 1. Breach by Non-Performance? 2. Breach by Defective Performance (Partial Performance)? Step 2: What damages might the plaintiff be entitled? 4P's: Put the Plaintiff in the Performance Position 1. Benefit-of-Bargain Damages (General Damages) A. Breach by Non-Performance (General Damages = Get - Give) B. Breach by Defective Performance (General Damages = FMV Promised - FMV Received) 2. Plus (+) Essential and/or Incidental Reliance Damages a. Essential Reliance: Money spent preparing or performing a contract $ spent in performing or in preparing to perform b. Incidental Reliance: Money spent in anticipation of a contract and dealing with breach fall-out $ spent anticipating other party's performance $ spent dealing with breach fallout 3. Plus (+) Consequential Damages Property damage Personal injury Lost resale profits Lost use profits (It must be reasonable to the seller/buyer that the item will be resold) 4. Minus (-) Expenses Saved (Cost and Losses Avoided) Unauthorized damages: (1) punitive damages, (2) emotional distress, and (3) attorney fees (unless specified in contract). Step 3: Do any limitations justify reducing (-) P's damages recovery? Avoidability Foreseeability Certainty Last Updated: 10 May 2009
COMMON LAW General Damages for Commonly Made Contracts Type of Breach
Breaching Party
Non-Performance
Buyer
= K Price - FMV of Land
Non-Performance
Seller
= FMV of Land - K Price
Construction
Non-Performance
Owner
= K Price - contractor's cost of performing
Construction
Non-Performance
Contractor
= FMV of contractor's services - K Price
Construction
Defective Performance
Contractor
= COR1 (unless COR1 is grossly disproportionate to DIV2); OR = COR causes economic waste
Nature of Contract Land Purchase & Sale Land Purchase & Sale
Measure of Damages
Employment for Non-Performance Employer = K Price Specific Term Employment for Non-Performance Employee = FMV of employee's services - K Price Specific Term 1 Cost of Repairs (COR): captures what you lost; gets you where you were promised to be; more accurate, except in economic waster cases 2 Diminution of Value (DIV): determined by expert witnesses (not as accurate)
UNIFORM COMMERCIAL CODE (U.C.C.) General Damages for Commonly Made Contracts Nature of Damages
Type of Breach
Breaching Party
U.C.C. §
Measure of Damages
All possible measures of seller's BOB damages for buyer's non-performance: K - FMV, K - Resale $, Profit, K Price (only under extraordinary circumstances). BUYER'S BREACH BY NON-PERFORMANCE.
Benefit of the Bargain
Non-Performance
Buyer
§ 2-708(1)
= K Price - FMV (OR:= Get - Give)
Profit
Non-Performance
Buyer
§ 2-708(2)
= Price Paid - Cost to Make
Profit Loss (Actual)
Non-Performance
Buyer
§ 2-706(1)
= K Price - Resale Price
Reasonable & Good Faith Resell w/o Resell
Non-Performance
Buyer
§ 2-709(b)
= K Price
SELLER'S BREACH BY NON-PERFORMANCE.
Benefit of the Bargain
Non-Performance
Seller
= FMV Price - K Price OR = Cost of Cover - K Price
Last Updated: 10 May 2009
Remedies
Damages
Restitution
(see separate chart)
Coercive Equitable Remedies
Liquidation (Agreed) Damages
(Specific Performance) (see separate chart)
GR: Value of the ∆'s gain at π's expense.
Substantive Claim (Unjust Enrichment)
EXCEPTION: Applies only to a party in breach Value of the ∆'s gain minus the damages caused by the breach.
Situations where a party can recover restitution damages only
Elements (Two-Part Test of Validity)
Damages were difficult to estimate at the time that the contract was made.
Elements
The ∆ gained benefit at the π expense (enrichment)
&
The amount stated is reasonable in light of either estimated damages or the actual damages.
Without compensating would be unfair (unjust)
1. As an alternative to damages. 2. A losing contract. 3. Unjust enrichment not tied to a valid contract. a. Alternative to a tort claim. b. $ paid for performance under void or voidable contract. c. Good Samaritan (services rendered by a medical doctor by an unconscious person) 4. To a party in breach.
Ground for Claim
Measure of Restitution
Alternative to damages for K Alternate to tort Performance under a non-contract
Value of defendant's gain
Losing K Doctors to unconscious patients Restoration to party in breach
(Value of defendant's gain) minus (Damages caused by breach, general damages)
Last Updated: 10 May 2009
Remedies
Damages
Restitution
(see separate chart)
(see separate chart)
Liquidation (Agreed) Damages (see separate chart)
Adequacy Requirement
Uncertain
Coercive Equitable Remedies (Specific Performance)
Discretionary Considerations
Undue burden on the ∆. Fairness of bargain.
Irreplaceable contract subject
Undue Burden on the Court. Higher degree of certainty.
Uncollectable
Public policy.
Injunctions Against Breach 1. Analyze adequacy requirement (see chart above). 2. Analyze discretionary considerations (see chart above).
Laches and unclean hands.
Covenants Not to Compete (see p. 416) 1. Must be part of a legit agreement; 2. Must be necessary to protect legit employer interests (good will, trades secrets, or other proprietary information); and 3. Cannot be unduly burdensome regarding geography, duration, amd restricted activity. Limitation 13th Amendment: It is against the 13th Amendment for a court to order an individual to work for an employer for whom the individual does not wish to work. Last Updated: 10 May 2009
PAROL EVIDENCE RULE STEP 1: Determine if the PER applies to the evidence. The PER ONLY applies to prior or contemporaneous oral evidence or prior written evidence for which there is no separate consideration. Is it oral or written?
Was it made prior to, during or after the making of the writing?
Was it for separate consideration?
If the PER does NOT apply, STOP. The evidence is admissible.
STEP 2: Determine if the writing is integrated at all. An agreement is integrated if it is in writing and final as to at least one term. If the agreement is NOT integrated at all, STOP. The evidence is admissible. An agreement that is NOT integrated at all does not bar ANY evidence.
STEP 3: Determine if the agreement is completely integrated. There are three approaches. Apply each separately. 1. Williston Two-Part Test (Narrow). NOTE: A merger clause creates an irrebuttable presumption of complete integration. If no merger clause, then apply two-part test: a. Look at the writing and analyze whether it was adopted as a complete, exclusive statement. b. Look at the term at issue and analyze whether it was natural for the parties to have omitted it. (Analyze the six Hatley naturalness factors on page 2 of the note-taking guide.) 2. Corbin All-Evidence Test (Broad). Look at the agreement, the term and all surrounding circumstances and determine if the parties intended a complete integration. * Merger clause is evidence of complete integration. 3. U.C.C. § 2-202. (Broad, like Corbin) Intent of the parties unless it is certain that parties similarly situated would have included the term. If the agreement is completely integrated, SKIP to STEP 5. If the agreement is NOT completely integrated, the evidence is admissible depending on whether it is consistent or contradictory. GO to STEP 4.
STEP 4: Determine if term is consistent with or contradictory to the writing. There are two approaches. Apply each separately. Reasonable Harmony Test: Courts look at what the parties have already agreed to and use as evidence to see if any contradictions. (Narrow - bars more evidence)
Complete Negation Test: Evidence is consistent as long as it does not completely negate any term in the agreement. (Broad - bars less evidence)
If the term is consistent or NOT contradictory, STOP. The evidence is admissible. If the term is inconsistent or contradictory, GO to STEP 5.
STEP 5: Determine if the evidence is of a type that is always admissible. Evidence of contract defenses, of an oral condition precedent, or to help resolve an ambiguity is always admissible. There are two approaches to identifying ambiguities. Apply each separately. Four Corners Rule: An agreement is ambiguous only if it appears so on its face. (Narrow - bars more evidence)
P, G & E Rule: An agreement that is unambiguous on its face can be shown to be ambiguous by extrinsic evidence, so long as the agreement is reasonably susceptible of the alleged meaning. (Broad - bars less evidence)
If the evidence falls into any of the above categories, the evidence is admissible.
Categories of K Ambiguities
CONTRACT INTERPRETATION ISSUES
1. Patent
General Ambiguity Problems
Recurring Ambiguity Problems
(Appearing on the face of document) 2. Latent
Grammatical Problems (Sloppiness) (e.g. commas, modifiers)
Words or Phrases with Multiple Meanings
Conflicts Among Terms
Same as General Problems BUT Arise in Special Contexts
(Ambiguity revealed only after learning additional info) 3. Gap in K (Contract is silent or incomplete regarding an issue)
NAME OF CONTEXT
Creation of an Constructive Condition
Creation of an Express Condition
Force Majeure Clauses
Time of the Essence Clauses
Construe narrowly and "other such causes" must be within the same category
Express Condition? Pro: It is so central that, without it, nothing important is left so it must be an EC. Con: Boilerplate - time is important but not so important to mean if performance is late, the K is over.
* Preference to find CC *
USE SPECIAL RULES
Preference for a promise & Against unclear and ambiguous language
1. Following stated or relative dates. 2. If the parties can perform at the same time, they must. 3. "Work before Pay." 4. Nature of Transaction.
Divisibility
TEST 1. K divided into pairs; and 2. Parties agree that each item in each part is an agreed equivalent of the other item in that part.
EFFECT 1. If divisible, breach of one party generally not excuse further performance. 2. If not divisible, breach of one party may excuse performance of dependent obligation.
AND
USE GENERAL CONTRACT INTERPRETATION RULES (IN ORDER OF PRECEDENCE) 2
1 Course of Performance (Performance of the K at issue and neither party has objected)
Negotiations between parties
3 Course of Dealing (Performance of past Ks between the same parties)
4
5
6
7
Trade Usage (Parties must be in the trade and usage is so prevalent that anyone in the trade would know it.)
© 2009, Carolina Academic Press - Used with Permission
Interpreting Ks to make them reasonable
Interpret the K to reconcile any inconsistencies
8 Contra Proferentem
Public Policy (Interpret against the drafting party)
Checklist for Identifying Patent Ambiguity 1. Try the easy way first. Look at the parties’ contract and their dispute and try to figure out what each party would say the contract means. 2. Focus on what you know about the dispute between the parties. Look for a basis in the contract itself for either party claiming the other party breached the contract. 3. Look for ambiguous words or phrases. Use your dictionary to help you develop alternative and competing meanings for what you believe to be the key words in the contract provision at issue. 4. Look for grammatical ambiguity. Make sure you understand what word in the contract each modifying phrase is modifying. If you discover that a phrase may modify more than one word, you may have found the ambiguity. 5. Look for conflicts between terms. 6. Try to translate the contract term(s) into your own words. If you cannot find the ambiguity, the act of translating may reveal it. At least, translating contract into your own words will demonstrate your ability to articulate at least one party’s contract meaning contentions.
© 2009, Carolina Academic Press - Used with Permission
Conditions
Express Conditions
GR: Courts prefer promises when the language is ambiguous.
Was the express condition accomplished?
Constructive Conditions
Clauses
CREATION
Magic Words (See Page 2)
OR
K Interpretation Rules
Perfect Performance: Express conditions must perfectly occur, for example: 1. Happen when suppose to happen; 2. Done in the correct manner
1. Pay when Paid: Ambiguous— must use the surrounding circumstances. 2. Time is of the Essence * FOR EC: If something is of the essence, it is so central that without it nothing important is left. * AGAINST EC: Boilerplate clause used by the parties to mean that time is important BUT do not mean that if performance is a day late, the contract is over. 3. Satisfaction: Creates an express condition. Standards to evaluate: * Fancy, Taste, or Judgment: made in "good faith." * Commercial Value: reasonable person in determining satisfaction. (operative fitness or mechanical utility).
GR: Preference for finding constructive conditions.
Did the non-breaching party get most of what he was supposed to get? (Core Assessment)
Types & Purpose
RULES (In order of precedence)
1. Follow stated or relative dates. 2. If parties can perform at the same time, they must. 3. "Work before pay." 4. Courts consider the nature of the transaction.
SUBSTANTIAL PERFORMANCE EFFECT 1. If an insubstantial performance, then a material breach and CC has not occurred. 2. If a substantial performance, then NO material breach and CC has occurred.
Rest. (2d) Contracts § 241 1. Extent non-breaching party did not get her essential K benefit. 2. Extent non-breaching party can get damages to substitute for loss of the K benefit. 3. Extent breaching party will have wasted time and money. 4. Likelihood breaching party will cure deficiencies.
CC help courts determine order of performance. 1. CC Precedent: second party has no duty to perform, unless other party performs. 2. CC Concurrent: parties' performances are due simultaneously—each must render/tender performance in order to claim a breach by the other party. 3. Independent: Terms are unconditional and parties must perform.
5. Extent breaching party acted in good faith.
Last Updated: 10 May 2009
Express Condition Language Chart (1) Language which all courts would agree create express conditions: 1. Conditional (-ed) on 2. Contingent upon ╚ Dependent upon* 3. Expressly conditioned on 4. If 5. If and only if 6. On the condition that 7. Only if 8. Provided that ╚ With the understanding that* 9. Satisfy or Satisfied or Satisfaction ╚ Adequate* ╚ Please (-ing)* ╚ Suffices (-ive)* 10. Shall be a condition precedent to 11. Subject to ╚ Subjugate to* ╚ Predispose* 12. Unless 13. Unless and until
(2) Language which all courts would agree do not create express conditions: 1. Covenant 2. For 3. Pledge 4. Promise or Promising ╚ Assure or Assurance ╚ Expect ╚ Warrant 5. Shall (or Shall Not) ╚ Expect you to ╚ Must ╚ Ought to ╚ Will (have to / be able to) 5. Swear 6. Time is of the essence 7. Vow
(3) Language about which reasonable lawyers could argue either way: 1. After ╚ Afterwards ╚ Behind ╚ Later ╚ Subsequently 2. As 3. As soon as 4. Pay when paid 5. So that 6. Time is of the essence 7. Until 8. Upon 9. Upon receipt of payment 10. Warranty 11. When ╚ Although ╚ At which time ╚ Considering that 12. While
* - Weaker variation found in the dictionary. A practitioner runs a risk that a court may find these terms ambiguous (see e.g. column 3).
Last Updated: 10 May 2009
Excuses
Nonoccurrence of a prior condition
Waiver
GR: Condition due before the condition at issue did not occur
GR: Beneficiary of a condition intentionally gives up the right to enforce the condition.
EFFECT
EFFECT
Discharge or Breach
Performance Excused
Prevention (Bad Faith)
Estoppel
GR: Beneficiary of a condition takes action indicating an intent not to enforce the condition and that action causes the other party to rely.
GR: Beneficiary of a condition causes the condition NOT to occur, or otherwise has breach her duty of good faith.
EFFECT
EFFECT
Performance Excused
Discharged Excused (depending on significance)
Force Majeure Clause
Impracticability / Impossibility
(Act of God)
GR: Impracticability clause. Lists circumstances in which a party can avoid having to perform the K without penalty.
EFFECT 1. If material part, then performance excused, remainder of K discharged. 2. If NOT material part, then that performance is excused, remainder of K is NOT discharged
EFFECT #1 Narrowly construe and "other such causes" must be within the same category to be effective.
ELEMENTS For Express Conditions Only
Occurrence is unforeseen event.
EFFECT #2
For Express & Constructive Conditions
Event makes performance impracticable (must radically change the obligation).
Shell: ⅓x increase (33% increase) (finding increased cost is NOT excessive or unreasonable). Howard: 10 to 12x increase (1000% to 1200% increase) (finding increased costs is excessive and unreasonable).
Nonoccurrence of event is basic assumption.
If something in the list happens, then you do NOT need to prove impracticability or impossibility.
Party had no fault in the occurrence.
K assigned the risk
Party has not assumed the risk, unless:
Event was foreseeable
Event was within the party's control
Last Updated: 10 May 2009
