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#Post#: 52--------------------------------------------------
Contracts 1 -Outline1!
By: SunsetSailor Date: February 17, 2011, 9:27 pm
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1. Offer and Acceptance
a. Offer (Restatement 24)
i. Definition: Manifestation of willingness to enter into a
bargain to which the OFR will assent
1. Words of commitment
2. Terms of the offer
3. Give power of acceptance
ii. OFR is master of offer
iii. Advertisement may be determined as an offer: (usually not)
1. Reasonable person would believe offer
2. Words of promise
3. Well-defined oferees
4. Price and terms in offer
5. Nothing left open to negotiation
iv. OFR may be destroyed:
1. Rejection by OFE
a. Also indirect rejection?
2. Counteroffer by OFE
3. Lapse of time
a. As specified in offer
b. Reasonable time (language and circumstances)
4. Revocation by OFR
a. When OFE receives communication of revocation OR
b. Indirect Revocation:
i. OFR takes action inconsistent with intent to K AND
ii. OFE acquires this information through reliable source
5. Death/incapacity (incapacity to contract) of OFR
v. Reasonable OFE must believe that offer was made by OFR (Rest
26)
b. Mailbox Rule
i. Offer, Rejection/counteroffer, Revocation + good upon receipt
ii. Acceptance  good when sent
iii. Confused OFE “rejection/counteroffer sent, followed by
acceptance”  whichever is received first
c. Acceptance
i. Bilateral
1. Promise for a promise
2. Requires notification for exclusively bilateral
ii. Unilateral
1. No acceptance only if OFE manifests intent not to accept
(Rest 53) (Burden on Δ, OFR)
2. If OFE should know that OFR has no way of learning about
acceptance, K is invalid, unless:
a. OFE diligently tries to notify OR
b. OFR learns of the performance in reasonable time OR
c. Offer indicates that notification is not required
iii. Method of Acceptance:
1. Exclusive  must be accepted as indicated (not favored
by courts)
a. Exclusive Unilateral
i. Acceptance by partial performance creates tweener K
1. irrevocable
2. conditional on full performance
ii. Where terms are clear, OFE reaps benefits of acceptance by
performance,K
b. Exclusive Bilateral
i. Begin performance + OFR knows and allows  exclusive
feature waivedK
2. Non-exclusive:
a. May accept by promise or by performance
b. “Unless otherwise unambiguously indicated by language or
circumstances: offer is non-exclusive  UCC 2-206
c. If doubt, offer invites promissory or performative
acceptance. Rest 32
d. Notice by performance: Rest 54
i. No notification necessary if exclusively unilateral
ii. In OFE has reason to know that OFR cannot know of
performance, no obligation UNLESS:
1. OFE exercises reasonable diligence to notify OFR, OR
2. OFR learns of performance in reasonable time, OR
3. OFR indicates that notice is not required
e. Acceptance by partial performance  K
f. Silence may be good for acceptance where (Rest 69)
i. OFE accepts benefit of offer OR
ii. OFR states that silence is acceptance & OFE manifests intent
to accept OR
iii. Previous dealings
g. For goods  UCC 1-303
iv. Mirror-image rule
1. Any acceptance not mirror of offer is Counteroffer
2. Non-matching forms  no K
v. UCC 2-207 (Oral, Written or Conduct K’s) (also Rest 61
dreaming)
1. In express K, acceptance with “additional/different” terms is
good unless acceptance is conditional on terms
2. Additional terms are proposals for addition to K.
3. For merchants, additional terms are part of K unless
a. Offer expressly limits terms OR
b. Terms materially alter offer OR
c. Notification of rejection is given in reasonable time.
4. K in conduct, terms are those agreed upon in written
evidences (purchase orders, shipping invoice, etc) and UCC
default warranties
d. Option contract = contract not to reject, needs consideration
Rest 37, UCC 2-205
i. Terminated on Time,
ii. Impractibility (thing/person is destroyed)
iii. Not by death, revocation or rejection
iv. If rejection and reliance on rejection, possible promissory
estoppel
e. Construction Contractors:
SubGeneralPrincipal
i. Irrevocable bid due to reliance
1. If General shops around  revocable
2. Implied rejection?
ii. Rest 87 (dream) for all reliance on offer
2. Bargain Contract: Promise Plus Consideration
a. Bargain Requirement
i. Objective test: Intent seen by actions of parties
ii. Calamari: Arrows count on test
1. Legal detriment to PE (Which is consideration)
a. Identify PR, PE
b. No other obligation to do/refrain
c. May be given to or received from 3rd party
2. Detriment induces promise
a. Nominal = given for looks, not bargained for
i. Disguises gift
ii. Size is evidence of nominal
b. Peppercorn = if bargained-for, value does not matter
3. Promise induces detriment
a. Disallows timing problems, past consideration
b. PE must be aware and accept promise
b. Sufficiency of Exchange
i. Illusory Promise
1. No Duty OR
2. Free way out
ii. Conditional Promise
1. PR as control of the condition  illusory promise
2. May fail for consideration
iii. Doubtful claims: release from a doubtful claim may be
consideration if:
1. Alt Test: Honest (subjective) AND Reasonable (obj) belief to
claim (Feige)
2. Rest 74:
a. Subjective: party honestly believes claim to be valid OR
b. Objective: Claim is reasonably based on facts/law
iv. Pre-existing Duty
1. Contract based on pre-existing consideration are generally
not valid
2. There are some exceptions for modified contracts:
a. Restatement 89 Modifications are good if: (not in most
states)
i. V - New K is voluntary by both parties (no hold-up)
ii. P - Modifications are made before either party fully
performs
iii. U - Circumstances leading up to new K were unanticipated
iv. F - Modification is fair and equitable
b. UCC 2-209 Modifications are good if:
i. Modified K is in good faith (no need for consideration)
ii. Good Faith = honesty in fact + observation of reasonable
commercial standard’s of fair dealing
v. Mutuality of Obligation
1. Bilaterial
a. Promise for a promise
i. UCC 2-306(1) Good Faith
ii. UCC 2-306(2) exclusive rights contracts must make best
effort to sell goods
iii. Illusory promise not a promise (Wood v Lucy)
iv. Requirement K buyer buys all required from seller
v. Output K seller sells all output to buyer
b. “Both are bound or neither is bound”
i. Mutuality test “can either side breach?”
ii. Good faith may block “free way out”
1. By creating a duty OR
2. Exercise of discretion
2. Unilateral = Promise for performance
c. Insufficient terms (can use subjective test to determine
insufficiency)
i. Defective formulation
1. Restatement 20 “comparative fault” & “Least Cost Avoider”
a. If A knew risk and did not communicate it, A bears risk
b. If equal in fault,  no K
c. Rule against drafter
2. Open Price Term: UCC2-305
ii. Definiteness of terms
1. Rest 33 K is reasonable certain if:
a. K describes how to find breach
b. K describes remedy in case of breach
2. UCC 2-204 K is certain if:
a. Intent to be bound (watch for intent not to be bound)
b. Basis for remedy
iii. Incomplete and Deferred agreement
1. Court may enforce K where:
a. completed negotiations on essential elements
b. performance has begun on good faith that matters will settle
c. objective method of determination of matters exists, ie
i. industry standards
ii. clause assigning methods/risks
2. Gap fill with industry standard where: (UCC 2.307 – 2.310)
a. Essential elements are agreed
b. Good faith reliance
c. Exists an objective method of determining remaining matters
3. Objective test: K shows objectively that parties intent was
not to terminate K in event of failure to agree (Watch for
objective intent not to be bound)
iv. Remedies:
1. Enforce K (Specific performance may be enforced in case of
inability to establish terms)  Gap fill
2. Promissory Estoppel  reliance
3. Restitution
3. Moral Obligation: Promise + Antecedent Benefit (moral
obligation is not sufficient consideration)
a. Quasi Contracts
i. Benefit given from giver and accepted by givee (need
opportunity to decline)
ii. Benefit was not gratuitous
iii. Justice calls for reimbursement for benefit
iv. Recovery is value of benefit to givee
b. Material Benefit Rule (Restatement 86)
i. Benefit given from PE and accepted by PR (Π to Δ),
and return promise LATER made.
ii. Benefit was not gratuitous (PR is unjustly enriched, PE
doesn’t expect remuneration)
iii. Return promise and benefit have values not disproportionate
(unjust enrichment)
iv. Recovery is the promise being enforced UNLESS
disproportionate, then court decides recovery.
4. Estoppel: Promise plus unbargained-for reliance
a. Equitable Estoppel: (not a cause of action, but an act)
i. Make out of court statement
ii. Trying to contradict statement in court may be estopped
iii. Talker intends other to rely
iv. Other party must rely to their detriment
b. Promissory Estoppel: Restatement § 90: (gratuitous promises
= Unbargained For) Promise is valid if:
i. PR reasonably expects action/forbearance in return for
promise
ii. PE does act/forbear
iii. Injustice is avoided only by enforcing promise
1. Availability/adequacy of other remedies
(cancellation/restitution)
2. Character of action/forbearance vs. remedy sought
3. Evidence of K making and terms
4. Reasonableness of action/forbearance
5. Action/forbearance foreseeable by PR
iv. Remedy may be limited for justice (reliance to expectancy)
5. Statute of Frauds
a. Restatement § 130 – Express words of > 1 yr = inside
i. Where any promise within a K cannot be completed within one
year, writing is needed
1. Indefinite oral K must not be performable within one year
(bricks in 13 mos)
2. If charged party testifies under oath of no K, trial ends.
ii. When one party has completed within one year, K can be
enforced
iii. Judicial testimony by Δ is enough to establish no K
(affidavit, disposition, etc)
b. Goods
i. UCC 2-201 (no 1 yr rule)
1. > $500 needs writing
2. Written confirmation  10 days to object in writing
3. Exceptions:
a. Specially manufactured goods
b. Judicial admission
c. Paid or received/accepted
c. Other (services, land)
i. 1-year provision
1. death within first year affects only indefinite duration (no
writing needed)
2. must be completely performable (by one party) within year (no
writing needed)
3. definite term > 1 year permits termination w/in 1st year
 need writing
ii. Other rules:
1. Alternative performance rule (OR  if either is
performable in one year  no writing needed)
2. Bilateral: all must be performable w/in year (no writing
needed)
iii. Compliance
1. Writing requirements:
a. must be signed by charged party
b. If charged party testifies under oath  trial ends, no
K
2. Multiple documents
a. Broad: Where multiple writings are involved, all unsigned
must plainly refer to same transaction as signed. Parole
Evidence permitted
b. Narrow: Where multiple writings are involved, all unsigned
must plainly refer to signed document. Parole evidence not
permitted
d. Remedies:
i. Equity (sue to retrieve the value of the benefit)
ii. Promissory Estoppel ? Mabey
6. Avoidance of Contract
a. Defects in bargaining process
i. Mistake on Basic Assumption (Belief not in accordance with
the facts)
1. Rest 152: Mutual Mistake: If adversely affected party does
not bear risk, K is voidable where:
a. Mistake is made by both parties @ time of K AND
b. Mistake has material effect on exchange:
i. Take account of relief by reformation,
ii. Restitution
iii. Otherwise
2. Rest 153: Unilateral Mistake: If adversely affected party
does not bear the risk, K is voidable where:
a. Adversely affected is only party that made mistake @ time of
K AND
b. Mistake is material AND EITHER
i. Enforcement of K is unconscionable OR
ii. Other party knew or had reason to know of mistake OR
iii. Other parties fault caused mistake
3. Rest 154: A party bears the risk when:
a. K allocates risk to party OR
b. He is aware of his limited knowledge at time K is made OR
c. Risk allocated by court (least cost avoider)
b. Unconscionability (in equity, peppercorn says there is a
contract)
i. UCC 2-302, Rest 208: Court may refuse to enforce part or all
of K if unconscionable @ time of making.
ii. Uncounscionability: (Oppression and Surprise) All
unconscionable have some substantive, procedural rqd?
1. Procedural (Surprise)
a. Complex terms
b. Disparity of sophistication
c. No study opportunity
d. Imbalance in bargain power
e. Un-negotiable terms
2. Substantive (Oppression)
a. Oppressive terms
b. One side left w/o remedy
c. Large gap b/t cost and price
iii. Rest 205 requires good faith and fair dealing in every
performance and enforcement of K
1. Adherence to commercial standards + Honesty-in-fact
2. Termination can be performance if in clause in K
c. Impractibility Rest 261-266, UCC 2-615
i. Was there an unexpected contingency/event contrary to the
basic assumption of the parties?
ii. Did the event make performance impracticable?
iii. Upon whom should the risk of the unexpected contingency be
placed?
1. Was either party at fault for the event?
2. Did the contract allocate the risk?
d. Frustration of Purpose: Rest 265-279
i. Elements:
1. Non-occurance of an event is the basic assumption of the K
2. Event happens and frustrates purpose of one party
3. Party asking for relief must not
a. Have assumed the risk OR
b. Be at fault regarding the event
ii. Price can be evidence of frustration
iii. Foreseeability is only a factor in frustration
1. silence allocates risk, Either:
2. Parties considered the frustration & K is silent or
3. Parties did not consider the frustration and K is silent
iv. Resembles mistake
7. Protectable interests (remedies)
a. Expectancy
i. Π  Post-K
ii. Contract benefit – contract cost
b. Reliance
i. Π  Pre-K
ii. Expenses and losses incurred in reliance
iii. Used where no benefit is given
c. Restitution
i. Δ  Pre-K
ii. Benefit given to the extent of unjust enrichment
iii. Used where benefit was given w/o K
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