Contracts Outline Fall 2022 PDF

Contracts | Fall 2022 | Spann | Sam Rubinstein I. Overview.................................................................................................................................................................................................. 3 A. What is Contract Law..................

Contracts | Fall 2022 | Spann | Sam Rubinstein I. Overview.................................................................................................................................................................................................. 3 A. What is Contract Law........................................................................................................................................................................3 B. Damages.......................................................................................................................................................................................... 3 C. Theories............................................................................................................................................................................................3 II. Enforceability..........................................................................................................................................................................................5 A. Promise Supported by Consideration............................................................................................................................................... 5 (1) Consideration Mech Test: R 2D § 71........................................................................................................................................5 (2) Was it a Gratuitous Promise or Bargained for Exchange?....................................................................................................... 6 (3) Was the consideration SUFFICIENT?...................................................................................................................................... 7 (4) Pre-Existing Duty Rule............................................................................................................................................................. 8 B. Promissory Estoppel.........................................................................................................................................................................9 (1) Promissory Estoppel Mech Test: R 2D § 90(1).......................................................................................................................10 C. Unjust Enrichment...........................................................................................................................................................................11 (1) Unjust Enrichment Mech Test................................................................................................................................................. 11 (2) Past Consideration + Moral Obligation................................................................................................................................... 12 III. Mutual Assent......................................................................................................................................................................................14 A. Intent of the Parties + Meeting of the Minds: R 2D §20.................................................................................................................. 14 B. Formation under Common Law...................................................................................................................................................... 15 (1) Offer........................................................................................................................................................................................15 (2) Acceptance.............................................................................................................................................................................15 (3) Options................................................................................................................................................................................... 17 C. UCC Requirements........................................................................................................................................................................ 20 D. Battle of the Forms & Fluid Acceptance......................................................................................................................................... 20 E. Clickwrap Agreements....................................................................................................................................................................23 F. Contracts of Adhesion / Form Contracts......................................................................................................................................... 24 G. Partial Agreements (Open/Indefinite Terms).................................................................................................................................. 25 Apply Gap Filler Rules................................................................................................................................................................. 25 IV. DEFENSES........................................................................................................................................................................................... 27 A. Statute of Frauds............................................................................................................................................................................ 27 B. Misconduct......................................................................................................................................................................................29 C. Mistake........................................................................................................................................................................................... 32 D. Changed Circumstances................................................................................................................................................................ 33 E. Unconscionability............................................................................................................................................................................36 V. Performance – Terms of Contract and Interpretation....................................................................................................................... 37 A. Parol Evidence Rule....................................................................................................................................................................... 37 B. Interpretation / Ambiguity................................................................................................................................................................40 C. Warranties...................................................................................................................................................................................... 43 D. Conditions.......................................................................................................................................................................................46 BREACH OF CONSTRUCTIVE CONDITION............................................................................................................................. 48 VI. REMEDIES........................................................................................................................................................................................... 54 *REMEDIES OVERVIEW*.................................................................................................................................................................. 54 4. LAW AND ECONOMICS..........................................................................................................................................................54 A. EXPECTATION INTEREST............................................................................................................................................................ 58 ★ >>UCC EXPECTATION DAMAGES = LOSS OF VALUE SECTION of EQUATION...............................................................62 >>LIQUIDATED DAMAGES.........................................................................................................................................................64 >>EQUITABLE REMEDIES......................................................................................................................................................... 65 B. RELIANCE INTEREST................................................................................................................................................................... 67 C. RESTITUTION INTEREST............................................................................................................................................................. 70 1  Contracts | Fall 2022 | Spann | Sam Rubinstein I. Overview A. What is Contract Law Legally binding promise that if breached, the law will provide a remedy Contract can be written or oral/verbal Terms of the contract can be explicitly written/discussed or implied The society decides to use societal resources to enforce the contract 1. Parties make rules for themselves a. Freedom of contract - terms and rules of the contract are created by parties themselves, contract law doesn’t care what you put in the contract i. “Tails of the Distribution” - protects atypical preferences, versus tort law which is reasonable protection b. Liberal Autonomy - parties enter agreement of their own free will i. Economic freedom - buy from/sell to whoever you want, etc. 2. The standard remedy is expectation damages a. Expectation damages - interest of a party in realizing the value created by the other’s promise (as good of a position as she would be if the defendant kept promise) B. Damages 1. EXPECTATION = puts the promisee in the position he would have been in if the contract had been performed (difference between expected result & current result) a. Hawkins v. McGee; diff between perfect hand promised and mangled hand 2. RELIANCE = recovering losses suffered by virtue of reliance on the contract 3. RESTITUTION = puts the promisor back in the position he would have been in had the promise not been made, recovering value conferred on the other party (reimbursement), preventing unjust enrichment C. Theories 1. Law vs Equity ○ Used to be courts of law and equity. Now merged and we favor law, but will use equity if legal remedies are inadequate because law: i. more certain and stable ii. promotes equality better iii. guards against prejudices of decision maker ○ Stare Decisis - Legal precedent, legal system is resolving the dispute in a way that is consistent with the rule of law (not influenced by the opinions of the decision maker) 2. Legal Realism (1930s) ○ Legal doctrine can be indeterminate, rejects legal formality (which is when one rule gives rise to one outcome) ○ Instrumental Objective: why do we have this rule? What’s the function or purpose of it? Then resolve the ambiguity in whatever way advances the rule. 2  Contracts | Fall 2022 | Spann | Sam Rubinstein 3. Law & Economics ○ We only want to enforce contracts that will benefit society and gains from trade 4. UCC v Restatement ○ If things aren’t contradicted between UCC and R, there’s not ucc doctrine on it, then resolve using R and vis versa ○ Duress doesn’t have ucc provision → so in sale of goods u would use R ○ Use ucc 1-103(b) 3  Contracts | Fall 2022 | Spann | Sam Rubinstein II. Enforceability 3 Ways to Enforce a Contract: 1. Promise supported by CONSIDERATION 2. PROMISSORY ESTOPPEL – reliance 3. When necessary to prevent UNJUST ENRICHMENT a. Find some enrichment b. Determine if enrichment is unjust c. Look for effect of an existing contract or absence of one A. Promise Supported by Consideration A promise requires consideration to be part of a bargained-for-exchange in order to make the contractual promise enforceable INSTRUMENTAL OBJECTIVE: Gains of Trade vs. Formalism (argue either way) Gains of Trade consideration must be substantive; if there is a bargained-for exchange, each party would gain something and is better off than they were before; in capitalist society we don’t want to enforce just any promise, we think everyone is better off and utility maximized if we devote legal system to promises that advance gains of trade Formalism - Fuller; consideration is a formality ○ Evidentiary Function: requiring a writing or certification of a notary ○ The Deliberative/Cautionary Function: deterrent of bad behavior ○ Channeling Function: signaling to the legal system that this is one of the promises we care enough about to have societal resources enforce Seal (like formalism) - no longer used for consideration, but can be used as signature (§ 2-203 and §95) → The seal in medieval English contract law took the place of proof of consideration and, in the absence of fraud, made the promise enforceable without consideration. Where, however, there was evidence of fraud, the seal was disregarded and proof of consideration was required. (1) Consideration Mech Test: R 2D § 71 1. Identify promise whose enforcement is at issue a. Promise cannot be a prediction or opinion (argue either way based on objective person belief) i. Hawkins v. McGee - prediction that hand would be better in a few days was not a promise, but 100% perfect hand was promise b. When it’s a Bilateral Contract = at least 2 promises, focus on the promise whose enforcement is at stake 2. Identify promisor and promisee 3. Answer the following questions (all 3 need to be “yes” for there to be consideration, hint for bargained for exchange “if, then”): a. Was there a DETRIMENT to the PROMISEE? R 2D § 71 i. Act ii. Forbearance is a detriment R 2D § 74 (not consideration if claims prove to be invalid unless there is doubt as to facts/law or forbearing party believes claims might be valid) 1. Military College v. Brooks - prom note was enforceable b/c P delayed the lawsuit which counted as forbearance; If legal claim is invalid, giving up the claim 4  Contracts | Fall 2022 | Spann | Sam Rubinstein is not consideration unless claim or defense is uncertain as to to facts of the law and had bargaining intent 2. Whitten v. Greeley-Shaw; forbearance of the woman from calling would have been consideration if man in the affair had sought that 3. Sharon v. Sharon; D made promise to pay P to not annoy, enforceable b/c forbearance is consideration and D sought that out iii. Creation, modification, destruction of legal right 1. Hamer v. Sidway: nephew gave up drinking/smoking/gambling until 21 for $; forbearance is consideration even if beneficial for promisee 2. I’ll give you a million dollars if you don’t go to Cleveland this afternoon (detriment is giving up legal right to go to Cleveland) 3. I’ll give you $5K if you refrain from using cocaine for the next 6 years (could say no detriment because no legal right before or yes detriment because you are giving up right to violate the law) b. Was the DETRIMENT BARGAINED for? (e.g. Did the promisor want the promisee to engage in the detriment badly enough to promise something in exchange?) i. SOUGHT by promisor in exchange for promise R 2D § 71 1. Whitten v. Greeley-Shaw - affair & promise not to call; forbearance was not consideration because no evidence that the man asked for woman not to call his home even though it might have been in his best interest 2. Sharon v. Sharon - forbearance from annoying D was sufficient consideration ii. Promise does not need to induce performance/promise R 2D § 81(2) 1. Earle v. Angell - promise to go to funeral; aunt sought out that performance, so even though nephew would have gone maybe anyway, that’s what D sought c. Was the PROMISE BARGAINED for? (e.g. Does the promisee want the promise badly enough to exchange a detriment for it?) i. ​Bargain itself does not have to induce the promise R 2D § 81(1) (2) Was it a Gratuitous Promise or Bargained for Exchange? Gratuitous promises are not legally enforceable because not supported by consideration since not a part of a bargained for exchange and don’t have bargaining intent 1. NOT BARGAINED FOR: May be a detriment suffered by the promisee, but the detriment is not bargained for because the promisor receives nothing in exchange for his gift. There is no benefit to the promisor. → LOOK FOR DONATIVE INTENT to distinguish from bargained for exchange (argue detriment was bargained for if you want it to come out the other way) i. Kirksey v. Kirksey; brother-in-law offers house to widow sister-in-law; donative intent b/c her moving her family there was just a condition on a gift, not a detriment constituting bargained for consideration (could argue D was gaining peace of mind, was in love with the widow, or needed people to live on his land as a placeholder for the money, etc. and therefore was bargained for) ii. Congregation Toras v. Deleo; promise to give synagogue money; unenforceable because (1) no bargained for detriment (2) no reliance iii. In re: Bayshore Yacht & Tennis Club Condo. Ass’n, Inc.: 11th floor elevator; gift promise to fix elevator AFTER P bought condo was unenforceable b/c no consideration iv. Pitts v. McGraw-Edison Co.: no employment contract, so didn’t constitute detriment when retiring from at-will employment; therefore it was a gift to pay the 1% for first 5 5  Contracts | Fall 2022 | Spann | Sam Rubinstein years after and prom estoppel can’t be applied if gift promise because employer did not get a benefit or bargain for the detriment 2. Counters: i. BENEFIT to PROMISOR: The condition (e.g. knowing your nephew is healthy) is what the promisor is receiving because they have a legitimate interest in that condition; therefore, there is consideration. 1. Hammer v. Sidway - nephew gave up drinking/smoking/gambling until 21 for $; could have argued uncle got benefit of knowing nephew was healthy (or on the other hand the detriment could be viewed as a condition to a gift like tramp example) ii. RELIANCE: even though not bargained for, gratuitous promises may trigger promissory estoppel enforcement Gift: Check would be delivered gift, doctrine of consideration does not apply 1. Once it’s a gift, it’s no longer under contract law just property law 2. could argue a check is just a promise to pay or that it’s a delivered gift since it is enforceable even in the absence of consideration (negotiable instrument) (3) Was the consideration SUFFICIENT? 1. QUANTITATIVE if we think it’s a bargained for exchange → must be SUFFICIENT (but not necessarily testing adequacy) i. Adequacy of Consideration: Law does not require fairness of exchange; courts don’t second guess adequacy of contract → Peppercorn Theory / Will Theory of Contract: don’t assess proportions if truly bargained for (e.g., i exchange a peppercorn for my house; if the parties think that’s fair, it’s up to them) R 2D § 79 a. Batsakis v. Demotsis - WW2 disproportionate exchange; enforced b/c was bargained for and in writing b. Embola v. Tuppela - Alaska property; Nominal consideration was not inadequate bc the promisor considered the exchange fair and to his advantage (investment in the future) ii. There are two exceptions where consideration is inadequate and court will not enforce: a. Nominal consideration: when consideration is so grossly disproportionate that it is merely a formality recited as a sham in an attempt to supply consideration (e.g. “in consideration of $1 paid”). The court usually will say that there is no real bargain and no consideration; rather it was a gift. Generally, this arises in promises involving actual numerical values. ○ gross inequity in the bargained for exchange can sometimes be evidence of fraud, duress, unconscionability, or mistake. (R 2D § 364 Effect of Unfairness) b. Recited Consideration - this is basically the same as nominal consideration except it involves a promise to do something in the future. c. Recited/nominal consideration is sufficient in option contracts. (R 2D §87 Option Contract definition) iii. Illusory Promise: one party is not really bound a. Lack of Mutuality of Obligation: mutuality means both parties have to be bound for any 6  Contracts | Fall 2022 | Spann | Sam Rubinstein party to be bound b. Thus No consideration b/c no detriment to promisee and therefore unenforceable c. UNLESS EXCLUSIVE DEALINGS CONTRACT ○ Obligation by the seller to use “best efforts” to supply the goods and by the buyer to use best efforts to promote their sale. R 2D § 78 & UCC § 2-306 ○ CREATED BY CARDOZO IN: Wood v. Lucy, Lady Duff-Gordon - fashion endorsements; Cardozo enforces contract even though there is lack of mutuality in the agreement & thus promise is illusory. Commercial agreement necessarily implies obligation of good faith → mutuality → consideration → enforceable. 2. QUALITATIVE if we think it’s a gift → consideration is insufficient i. Consideration is insufficient if it was just camouflage for donative intent a. Can argue either way based on instrumental objective: ○ Fuller/Formalism: parties made it look like a bargained for exchange, so we should enforce it under principles of formality and freedom of contract ○ Gains of Trade: not really a bargained for exchange just trying to make it look that way and we really care about making the parties better off b. Fischer v. Union Trust co. - Deed to land for daughter; Father had DONATIVE INTENT, and therefore, it was a gift promise even though it mimicked a bargain with the $1 exchange she gave him (Fuller Formalism v GoT) + father’s love is not consideration c. Schnell v. Nell. - promisor received 1 cent and love was past consideration so consideration was insufficient, camouflage for donative intent (4) Pre-Existing Duty Rule >>Pre-existing Duty Rule: (only applies to non-goods) If you promise to do something that you are already legally obligated to do, then you have not incurred a new detriment and there is no consideration. Alaska Packers v. Domenico; sailors refuse to work unless they receive more pay Instrumental Objective: To prevent extortion of modifications in the sale of non-goods only. If you already agreed to a previous contract to do X, and there were Y circumstances that came about later that are ALREADY enveloped under X, then you can't at that point say "I don't want X"; that would be extortion. >>Counter to Pre-Existing Duty Rule: 1. Define Detriment as “New”/“RIGHT TO BREACH”: a. Some courts say that foregoing one’s legal right to breach a contract + simply pay damages by continuing with performance is a sufficient detriment for consideration in contract modification and dispenses with the pre-existing duty rule. b. A limit on this exists where it is known that a party does not have the means to pay damages in the case of a breach of contract. In that case, foregoing a “right to breach” may not be sufficient consideration. (e.g. Alaska Packers) 2. Invent unanticipated difficulty/Unforeseen Circumstances R § 89(a) modifications of executory contract which have not been performed are binding unless made in bath faith (e.g., duress) R § 89(a) a. Contract modification is binding, if it is fair and equitable 7  Contracts | Fall 2022 | Spann | Sam Rubinstein b. in view of all the circumstances not anticipated by the parties when the contact was made c. Modification made before the contract was fully performed on either side d. Not for sale of goods e. Made in good faith 3. Agree to voluntary mutual rescission of a contract, rather than a modification. The parties mutually agree to no longer pursue the contract. a. Schwartzreich v. Bauman-Basch, Inc. - was the old way where you could rescind a contract in consideration of new contract, but now we won’t allow those to happen at same time because shows lack of mutual assent since one party is probably worse off in the new contract 4. Use UCC, which rejects pre-existing duty rule UCC § 2-209 1. Modification must be made in good faith / for a legitimate commercial reason. a. (1) subjective honesty (2) justification for the decision to seek modification b. extortion of modification is in bad faith and can’t be enforced 2. Need no consideration to be binding even if it is oral BUT must satisfy Statute of Frauds a. A signed writing that excludes modification except by separate signed writing cannot otherwise be modified, except if merchant provides separate writing that’s to be signed b. SoF requirements for modification i. modification to contract MUST satisfy the requirements of SoF. ii. Just like the original agreement, a modification need not be itself be in writing; only evidenced by writing & signed. iii. parties free to incorporate a “contractual statute of frauds” in their contracts requiring higher standard for modification than UCC does. B. Promissory Estoppel A promise is enforceable by law, even without consideration, because the promisee relies on the promise to his subsequent detriment INSTRUMENTAL OBJECTIVE: (1) harm to gains of trade because the contract is breached, and (2) upsetting someone’s reliance inflicts an injury to someone that the legal system should respond to (tort theory); we want people to be able to rely on promises Societal desire to not frustrate someone’s reliance, caused the court to strain the concept of equitable estoppel → taking it from fraud/misrepresentation of fact and applying it to promises that induced reliance as if there was fraud ○ Ricketts v. Scothorn; applied Equitable Estoppel even though no fraud, grandfather promising grandaughter prom note but quitting job was not consideration ○ Siegel v. Spear; left furniture with someone promising to get insurance and it burned down never got insurance; court said reliance on promise to get insurance was consideration even though no detriment to P → were substituting reliance and consideration. This led to Cardozo’s Allegheny decision. ○ Allegheny College v. National Chautauqua County Bank; Cardozo engaging in propaganda for Prom estoppel Led to change from R 1D to R 2D: (1) added language that reliance needs to be substantial and (2) added charitable subscription and marriage settlement exception b/c hard to prove how exactly you relied 8  Contracts | Fall 2022 | Spann | Sam Rubinstein (1) Promissory Estoppel Mech Test: R 2D § 90(1) 1. Foreseeability: a promise reasonably expected by the promisor to induce action or forbearance. 2. Detrimental Reliance: promise actually did induce action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”) a. Can rely on express promise (Prom Estoppel ) or words/actions that induce reliance (Equitable estoppel) i. Ricketts v. Scothorn; equitable estoppel b. Cannot rely on erroneous statements of FUTURE BEHAVIOR (rep of future promise) i. Prescott v. Jones: insurance company sent letter to renew, but P didn’t, building burned down; the letter was a representation of future promise but not the promise itself → so no misrep of fact → no upset reliance c. Do not need to show actual reliance when it’s charitable subscription or a marriage settlement R 2D § 90(2) i. Allegheny College v. National Chautauqua County Bank - (Cardozo creating prom estoppel) D promised to give college $, gave part of it and then denied the rest; P relied on the rest of the money for budgeting but hard to prove how exactly they relied which is why this was added to R 2D Charitable Subscription exception. 1. Congregation Toras v. Deleo; promise to give synagogue money; opposite outcome as Allegheny (no reliance on the promise because accounting for donation in their budget is not sufficient to prove reliance) ii. I&I Holding Corp. v. Gainsburg - D pledged money to hospital, P proceeded with their work, paid money, took on liabilities, so relied (don’t need actual reliance on the specific promise in charitable subscription) iii. Salsbury v. Northwestern Bell Tel. Co - D promised by letter to gift college, then college failed; charitable promise was still enforceable without proof of reliance 3. Avoid injustice: injustice can be avoided only through enforcement of the promise. a. APPLY RELIANCE DAMAGES, off-contract remedy: we are treating prom estoppel as tort, not as a substitute for consideration which we know because not awarding expectation damages which is the on-contract remedy i. Goodman v. Dicker - P detrimentally relied on “dealer franchise” to sell D’s products; court awarded reliance damages Arguments for PE Economic argument: deals without consideration can support gains-of-trade (donating money to gtown to build a library is economically good) Liberal Autonomy: the promisor decided on his own free will to make the promise Policy argument: For the betterment of society, it is a good thing to protect someone’s reliance, don’t want people just making promises and not keeping them Argument against PE Economic argument: we only want to enforce promises that support gains-of-trade. If there is no consideration, there is no bargain for exchange. We will be enforcing contracts that don’t increase social utility. We are not actually enforcing a contract, we’re just protecting reliance. This isn’t tort law. 9  Contracts | Fall 2022 | Spann | Sam Rubinstein C. Unjust Enrichment INSTRUMENTAL OBJECTIVE: We want to prevent unjust enrichment and protect reliance, so we will enforce promises even in the absence of consideration. Primarily it seeks to remedy common situations where a party received a material benefit at the unfair detriment of another. (1) Unjust Enrichment Mech Test Wrongly or passively receive a benefit that would be unconscionable to retain (arguing either way can say there was no injustice or no enrichment) 1. Find some enrichment - the party from whom recovery is sought must’ve had some material benefit (economic) 2. Determine if enrichment is unjust - no gratuitous / humanitarian / voluntary intent and did not impose the benefit Non-Promissory Restitution - Got a benefit without asking for it but no reason to think it’s gratuitous 1. Many states have statutes that authorize recipient of unordered merchandise as a gift - you can use or send back → In (Austin v. Burge) that wasn’t the case because the D had no reason to believe it was gratuitous 2. Martin v. Little, Brown & Co; book publisher alerted by P to plagiarism; volunteered to do so so can’t recover, no discussion of payment before the benefit was conferred (could also argue that obviously you should have expected to pay for that service) 3. Look for effect of an existing contract or absence of one Quasi-Contract / Contract implied in law - law forces contract on people even though they didn’t make one → Parties would have agreed that there was a contractual obligation had the point occurred to them (Posner is anti this; in the circumstances where the parties had the opportunity to bargain beforehand and didn’t, it’s their tough luck) 1. benefit conferred upon D by P 2. appreciation of benefit by D, Does not necessarily need to be a promise, but where there is, it’s easier to see that the person considered themselves enriched/benefited 3. acceptance and retention by D of benefit under such circumstances that it would be inequitable to retain the benefit without restitution Exception for emergency situations – a party seeking restitution under quasi contracts MUST show that the other party was given the opportunity to decline the benefit, but didn’t 4. Award Restitution Damages Restitution R 2D § 86 - off-contract remedy to prevent unjust enrichment (returns everyone to original place). a. Specific restitution - Promisor must return the benefit that was received b. Reasonable restitution (Quantum Meruit) - pay the reasonable value of what was received General Unjust Enrichment Cases Edson v. Poppe - drilled well, then landlord promised to pay; benefit conferred, no gratuitous intent, and D expressed the promise to pay; for P Collins v. Lewis - P took care of Ds cows since he refused to take them back and D knew about it; D should pay reasonable value of keeping services 10  Contracts | Fall 2022 | Spann | Sam Rubinstein In re Schoenkerman’s Estate - Wife’s mother and sister moved in with D after she died to help with childcare; Prom notes acknowledged moral obligation after D died and was enforced (could argue family situation meant gratuitous) Seaview Ass’n of Fire Island N.Y. v Williams - refused to pay homeowners associations’ fee; D had knowledge of communities’ benefits and was implied that they were accepting benefits when owning property there Caution: Do not use consideration arguments with unjust enrichment/restitution. Restitution is not available for volunteering benefits gratuitously w/ no reasonable expectation of payment at the time the benefit is conferred. (2) Past Consideration + Moral Obligation Does not constitute consideration because no mutual inducement UNLESS there was an implied promise that induced performance, even if explicit promise is not made until later R 2D § 82 1. “Past consideration” or “moral obligation” any detriment has already passed so #2 and #3 of 3 part test is no because timing precludes it a. Mills v. Wyman - father promises to pay for son’s hospital stay afterwards; detriment has passed and not enforceable because remedy of restitution wasn’t recognized for breach of contract by courts (also if we want to advance gains of trade and/or Fuller → no past consideration) 2. Moral Obligation - Does not constitute consideration or sufficient basis for enforcement. When the promisor’s motivation for making the promise is a past benefit he received that gave rise to a moral, but not legal, obligation to make compensation. Typically won’t enforce… a. Can’t use moral obligation for bases of enforcing promises because: i. people have different moral views ii. wouldn’t lead to gains of trade iii. should treat consideration with “Cautionary” approach from Fuller (deter people making promises and not keeping them) b. UNLESS, PROMISE TO PAY A PAST DEBT OR WHEN MATERIAL BENEFIT RULE APPLIES i. PROMISE TO PAY A PAST DEBT: 3 cases where debtor makes a promise to pay an earlier unenforceable debt and although the later promise lacks consideration, the moral obligation to pay the pre-existing unenforceable debt is treated as sufficient to make the promise enforceable. Despite statute of limitations have passed ○ Muir v Kane - D refused to pay broker in oral agreement, Despite statute that this type of agreement had to be in writing and it wasn’t, Ds had a moral obligation to pay for service already rendered, intended as a non-gratuitous thing Despite unenforceable promise made to minors (or otherwise voidable) ○ If the party with the right of avoidance ratifies the contract by a 2nd promise after becoming aware of the defect or after the basis for contractual incapacity has ended, the later promise is binding despite the lack of new consideration. 11  Contracts | Fall 2022 | Spann | Sam Rubinstein Despite unenforceable promise made to bankrupts ○ Promise to pay discharged debts ii. MATERIAL BENEFIT RULE APPLIES - Promise made in recognition of a benefit previously received by promisor is binding to the extent necessary to prevent injustice, BUT is not binding if it was conferred as a gift, the promisor has not been justly enriched, or to extent value is disproportionate to the benefit R 2D § 86 Webb v. McGowin (crippled employee saved owner’s life); consideration was in the past, which isn’t enforceable ON CONTRACT, but the court was enforcing restitution to avoid unjust enrichment OFF CONTRACT b/c there was a material benefit (saving life) ○ different from Mills v. Wyman where there was no enrichment (son died), son was the one who would have been unjustly enriched not father >> Arguments for Unenforceability 1. Benefit conferred is a gift promise R 2D § 86 2. To the extent that promise’s value is disproportionate to the benefit. R 2D § 86 3. No benefit conferred upon D by P because P was acting as a volunteer ○ Harrington v. Taylor (P saved D from ax, but hand mutilated); Humanitarian act, voluntarily performed, is not sufficient consideration 4. It is a moral obligation & does not fit 3 within exceptions (Mills v. Wyman) 12  Contracts | Fall 2022 | Spann | Sam Rubinstein III. Mutual Assent Formation requires: (1) A bargain R 2D § 17 (2) Meeting of the minds through objective manifestation of intent R 2D § 18, 19 1. Can be made by written or spoken words, acts, or failure to act 2. Conduct is not effective manifestation unless he intends to be bound and knows or has reason to know that other part will infer that 3. No assent if lack of meeting of the minds (i) If someone is to blame for lack of meeting of the minds, apply modified objective theory R 2D § 20 (3) some showing that this assent is the kind that the law will enforce 1. Will not enforce when fraud, duress, mistake, or other invalidating causes R 2D § 19 A. Intent of the Parties + Meeting of the Minds: R 2D §20 Subjective Theory - 16th-19th century theory of mutual assent ○ Raffles v. Wichelhaus - Parties thought of 2 different “Peerless” ships arriving on different days; no mutual assent so no contract (could argue the other way that buyer was just trying to get out of a bad deal on technicality/immaterial term) Objective Theory - This is the prevailing theory. Measured by how a reasonable person, under the circumstances, would interpret each party’s outward manifestations of assent w/ no consideration of internal/subjective assent. it doesn’t matter what 2 parties intended. It only matters what the 2 parties looked like they intended. ○ INSTRUMENTAL GOAL: Protect reliance interest of someone who changes their position based on someone else’s outward manifestations of intent (how reasonable person would interpret) admit/exclude evidence based on whether that evidence implies intent and will help us protect reliance Liberal autonomy & freedom of contract: people enter the contract through their own free will & they voluntarily assent to contract & terms of contract ○ Embry v. Hargadine-McKittrick Dry Goods Co. Employee thought employer renewed employment contract; Reasonable person would have believed there was an employment contract based on outward words of D (not his internal thoughts) ○ Bridge City Family Medical Clinic, P.C. v. Jebt & Johnson, LLP law malpractice suit settlement agreement; Applies objective theory → D relied on P’s manifestations of intent to settle via email with mutual release provision by not objecting (goal: protecting Ds reliance on not needing to offer new amount of money to P because no more threat of litigation) ○ New York Trust Co. v. Island Oil & Transport Corp. P knew or should have known that oil sales was a sham and court will not use its resources to enforce something illegal Modified Objective Theory R 2D § 20 - Although objective is prevailing theory, this theory will be used when the court thinks there is someone to blame. ○ Dickey v. Hurd - D knew P was mistaken by his letters; Yes meeting of the minds because D knew or should have known based on letters how P interpreted the contract → should have corrected him if that wasn’t what D intended (modified objective theory, blaming D) 13  Contracts | Fall 2022 | Spann | Sam Rubinstein ○ Flower City Painting Contractors v. Gumina Constr. Co parties disagreed if contract meant painting interior and exterior or just interior of building; No contract because no meeting of the minds; buyer would only have been bound by painting trade usage knowledge if he knew or had reason to know it → not going to enforce contract where neither party can be assigned greater blame for the misunderstanding B. Formation under Common Law R 2D § 22: offer and acceptance is manifestation of intent, even if moment the formation happened can’t be determined (1) Offer 1. An offer IS: Objective manifestation of intent to be bound without any further action on the part of the offeror (offer creates power of acceptance with offeree) (R 2D §24) ○ Offeror is master of the offer 2. An offer is NOT: ○ Preliminary Negotiations / Solicitation to Negotiate: are made prior to the offer and include opinions, statements of intentions, inquiries, invitations to make offers and price quotes; some terms are left open so there is no intent to be bound without further action (R 2D §26) There is no contract where risk of excessive multiple liability shows store intended blast email to be solicitation rather than offer Moulton v. Kershaw; salt dealer cold call; There was no offer b/c there was not a manifestation of intent to be bound without further action since the quantity of salt terms were left open; If D had used the word “sell” it would not have been merely an ad ○ Advertisement: generally not an offer, usually are solicitations/invitations to offers. UNLESS R 2D § 26(comment b); exceptions: clear or have words of commitment, so clear, definite, and explicit to all essential terms, it left nothing open for negotiation, it constitutes an offer (b/c no further action needed) Nguyen v. Barnes & Noble, Inc. - Barnes & Noble selling HP tablets and sent confirmation email only to say it wasn’t available anymore; Advertisement was an offer here b/c left nothing open to negotiate so was objective manifestation of intent to be bound without further action on D’s part (shipping method was just ancillary term) ○ Offer in jest: Only if offeree knows or has reason to know that offeror is not serious (2) Acceptance 1. ACCEPTANCE IS an objective manifestation of intent to bring the contract into existence and be bound by the terms of the offer. R 2D § 22 i. Silence: Silence is acceptance when offeree (1) takes benefit, (2) has reason to understand that manifestation of intent can be given by silence or inaction (modified obj theory), and (3) where they had previous dealings so offeree knew that they should tell offeror that they don’t accept R 2D § 69 14  Contracts | Fall 2022 | Spann | Sam Rubinstein Hobbs v. Massasoit Whip Co. - D kept eel skins from P for some months and knew P would have thought D would accept them (they had done this transaction before) 2. ONLY OFFEREE CAN ACCEPT: Offer asserts the power of acceptance on offeree R 2D § 29, 35 3. MAILBOX RULE: Acceptance is effective upon mailing not upon receipt, unless promisor has specifically insisted upon effectiveness upon receipt R 2D § 63 i. Applies to authorized mode of communication (US postal service or other modes if you use same mode as offeror used), properly addressed, and adequate postage 63(a) 1. Or use mode of invited acceptance - USPS snail mail is not an invited form of acceptance for email offer ii. Offeror retains power of revocation up to time that offer is accepted (upon dispatch) Instr objective: Protect reliance of offerree b/c once offeree mails the acceptance, assuming contract; Though it might frustrate offeror’s reliance (since mutual assent has not yet been communicated to them), we favor offeree’s reliance here b/c formalism a. Cons: Not protecting reliance of offeror b/c there might be non-delivery Rule creates contract despite oral revocation of acceptance prior to receipt of mailed acceptance and ignores lack of mutual assent even though no reliance would be frustrated by permitting revocation If lost or delayed in transit, contract is formed upon dispatch so what happens after that point doesn't affect the formation of the contract. Spann says MBR may not be needed anymore bc we have R 2D § 87 and § 90 (option & promissory estoppel) Morrison v. Thoelke - contract to buy land was put it in the mail, but before delivery, P called D to cancel contract; there was a contract b/c mailbox rule iii. Does not apply to: 1. USE WHEN TRYING TO REVOKE AFTER ACCEPTANCE: Common law mailbox rule exception to actual mutual assent, when not necessary to protect offeree reliance, is displaced under UCC 1-103/1- 103(b) by 2-204(1) where conduct is not “sufficient to show agreement” 2. option contracts (irrevocable offer) → acceptance upon receipt 63(b) 3. legal documents like eviction notice or a check because those mean nothing until received → acceptance upon receipt 4. rejections → effective once received R 2D § 40 5. acceptance sent after rejection → counter offer (rejection) unless acceptance is received first R 2D § 40 4. POWER OF ACCEPTANCE IS TERMINATED BY: R 2D § 36 i. Revocation - Offeror can modify or revoke the offer any time he chooses as long as the contract is: i. Not an option contract (R 2D §25; irrevocable offer) ii. Not a unilateral contract where performance has begun (R 2D §45) iii. Revocation can be communicated directly from the offeror (R 2D §42) or revocation can be implied when the offeree learns of information from a reliable source or the 15  Contracts | Fall 2022 | Spann | Sam Rubinstein offeror’s behavior does not suggest that they intend on being bound (R 2D §43), that the offer is no longer on the table ii. Rejection / counter-offer a. Counter-offer → no contract because counteroffer is a rejection of the offer + a new offer Qualified/Deviant Acceptance → no contract, type of counter-offer (If the offeree can convince the factfinder that their intent was actually to e.g. make an acceptance and not a qualified acceptance, then it is possible to rule in their favor.) Livingstone v. Evans - cheaper price was a counter offer and terminates original offer, BUT here the buyer still can accept seller’s offer because seller renewed original offer in next communication and then buyer accepted (if ultimate goal here is to enforce mutual assent, then there is a problem here bc clearly seller didn’t mutually assent) Inquiry → a response that is legally insignificant and has no legal consequence; mere negotiation b. Rejection → no contract (also no contract when it’s a rejection and then acceptance) iii. Lapse of time - offeror is entitled to specify time within which acceptance must be made, if not, offer must be accepted within a reasonable time iv. death or incapacity of the offeror or offeree - only relevant if occurs between offer and acceptance (doesn’t affect formation if incapacity is after formation) v. non-occurrence of any condition of acceptance under the terms of the offer Bilateral Contracts - promise exchanged for a promise Offeror has the power to prescribe the time, effective date, and method of acceptance. If offer invites either performance OR promise as acceptance, it is a bilateral contract. Under this, once you start performing then you promise to finish performance. So if you don't complete performance, then you'll be in breach of contract (R 2D § 62) (3) Options >>Unilateral Contracts (Traditional) - exchange of a promise for performance. Offeror can revoke before performance begins, but once offeree tenders or begins invited performance, an option contract is created (R 2D § 45) 1. Can only be accepted by performance → that is when the contract exists 2. Intent of offeror is to NOT have a bilateral contract; they enter into unilateral contracts when they only have an interest in the performance, no interest in the promise Petterson v. Pattberg- mortgage reduction; offer for unilateral contract was revoked before performance (and before tender of performance, even though P showed up at house to pay), so there was no acceptance and no contract (dissent says no b/c majority is making offeror’s acceptance of money the final act which is not right OR there was reliance on D’s promise b/c P tendered performance by getting out the money and going there) → today would be decided differently because would fall under option contract Purpose of Unilateral Contract: 16  Contracts | Fall 2022 | Spann | Sam Rubinstein 1. Offerees benefit by unilateral contracts because they will get paid if they are successful but not sued for expectation if they don’t → usually for a performance that offeror doesn’t think offerrees would like 2. Where there is multiple liability (multiple people can go try to find my dog) → “first person” who can find my dog, is the person who will get $, reduces risk of multiple liability 3. Unilateral contracts are RARE >>Option Contracts (Modern) Definition: Option is a promise to keep an offer open for a stated period of time. Offeror does not have power to revoke. Promisor is promising to not revoke the offer in exchange for: 1. Consideration R 2D § 87(1)(a); the offeree must purchase the option by exchanging some form of consideration. BUT – the consideration does not have to be actual consideration – recited or nominal consideration is sufficient to make a binding option contract (§87) 2. Actual Performance / Not preparation R 2D § 87(1)(a), 45; Option Contract Created by Part Performance or Tender Common Law now treats unilateral contract as an option once offerree has begun performance R 2D § 45 (E.g., I’ll give you $100 if you walk across brooklyn bridge, start walking across bridge so offeror can’t revoke) 1. Cmt F: beginning preparations are not enough to constitute performance, but may constitute justifiable reliance 3. promissory estoppel; (goal protect reliance) 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. (so even if no consideration) R 2D § 87(2) a. Drennan v. Star Paving Co.; court applied promissory estoppel when general contractor relied on subcontractor’s bid before gc accepted by putting in the bid before subcontractor revoked it (could argue that gc should have purchased an option by saying “I will only consider your bid if you make it irrevocable”) 1. James Baird Co. v. Gimbel Bros., Inc.: reliance prior to acceptance is not foreseeable, and therefore promissory estoppel does not apply (valued formalism & came before Drennan) b. Hoffman v. Red Owl Stores, Inc.: court applied prom estoppel to protect P’s reliance when P relied on Red Owl’s promise to allow him to run franchise store for 18K (then Red Owl kept increasing price even after P jumped through hoops D set out) 1. Could argue: reliance was not foreseeable b/c they were just negotiating (we are doing law not equity; turns on what you think is “unjust” in foreseeable → reliance → prevent injustice test) 4. virtue of a sealed agreement 5. By statute (UCC) R 2D § 87(1)(b); UCC Requirements a. UCC § 2-205 Firm Offer: If you want to make an irrevocable offer, you can without consideration, as long as its: 1. An offer by a merchant to buy or sell goods in a signed writing 2. terms give assurance that it will be held open is not revocable, for lack of consideration 3. during the time stated or if no time is stated for a reasonable time 4. Irrevocability period may not exceed three months (Need consideration if it will be for longer term); 17  Contracts | Fall 2022 | Spann | Sam Rubinstein 5. but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. If trying to say no option contract: if not displaced by UCC exception to mailbox rule, mailbox rule is inapplicable to options under R 2D §63(b), where offer assuring it will be held open during “Thanksgiving Weekend Sale” is 2-205 firm offer to sell goods, that is electronically signed by 2-104(1) business-knowledge merchant PARTIAL PERFORMANCE or DETRIMENTAL RELIANCE incurred by the offeree may render an offer to be an option contracts temporarily irrevocable. There are three situations when this occurs: 1. The offer is for a unilateral contract (accepting through partial performance), and the offeree begins performance (§45) 2. It is not clear whether offer is for a unilateral or bilateral contract and the offeree begins performance (§62) 3. Promissory estoppel: The offeree makes preparations prior to acceptance and incurs a detrimental reliance on the offer, and it is necessary to prevent injustice. (§87) 18  Contracts | Fall 2022 | Spann | Sam Rubinstein C. UCC Requirements 1. Involves a transaction UCC § 2-102 2. Of Goods: UCC § 2-105 i. MOVABLE at the time of identification to the contract for sale 1. Data plan purchased with smartphone is not service, but is component of UCC 2-105 sale of moveable goods ii. Includes specially manufactured goods iii. Includes unborn animals, crops, other identified things attached to realty as described in the section on goods to be severed from realty iv. Must be both existing and identified. Anything else is a “future good” v. Not money/securities vi. Not real property or services 3. (sometimes) Between merchants: UCC § 2-104 i. Deals in goods ii. Occupation has knowledge or skill specific to practices of transaction iii. Knowledge Goals of UCC Simplify, clarify, and modernize, permit the continued expansion of commercial practices, make uniform the law among the various jurisdictions. UCC § 1-103 Terms of UCC may be varied by agreement of the parties, but cannot disclaim by agreement obligations of good faith, diligence, reasonableness, and care UCC § 1-302 D. Battle of the Forms & Fluid Acceptance Contracting parties send boilerplate forms to each other that have contradicting terms, but the parties nevertheless act like they have a contract. >>COMMON LAW BATTLE OF THE FORMS: 1. Acceptance mirrors the terms of the offer exactly → valid acceptance that forms a contract under Mirror Image Rule 2. Acceptance DOES NOT mirror terms of the offer exactly → a. Terms are conditional on offerror’s assent → no acceptance since it’s a counteroffer R 2D § 59 b. Terms are not conditional on offerror’s assent → acceptance R 2D § 61, but continue on to figure out if terms get added into contract (e.g. “Can you sell for a cheaper price? If not, I’ll still take it) c. If battle of the forms: Last shot rule final form sent is the one that governs (e.g. if buyer sends final form and seller then ships the goods, the sellers shipment will be viewed as an acceptance of the buyer’s form OR If seller sends last form, buyer’s payment will be viewed as acceptance of the sellers form) 19  Contracts | Fall 2022 | Spann | Sam Rubinstein i. Have to have conducted themselves in a way that looks like they intended to be contractually bound → acceptance ii. Otherwise → No acceptance >>UCC BATTLE OF THE FORMS + FLUID ACCEPTANCE: Determine if there was a contract, when there is 1 form: 1. Contract or conduct showing both parties recognized the existence of a contract (merchants or nonmerchants)? § 2-204(1) a. No → no acceptance/contract b. Yes conduct → even if one or more terms were left open and even if the moment of agreement is undetermined, did the parties intend to make a contract and is there a reasonably certain basis for giving an appropriate remedy? § 2-204(2),(3) i. No → No acceptance/contract ii. Yes, parties intended to contract and reasonably certain basis for appropriate remedy → acceptance/contract Fluid Acceptance: a contract where a buyer orders and pays for goods without seeing most of the contract terms usually contain on or in the box containing the good. The buyer is told that they have a specific set of time within which to return the good for a full refund if they do not agree with the contracts terms. a. ProCD, Inc. v. Zeidenberg - not returning software after inspection of shrinkwrap license constitutes acceptance of terms by conduct b. Hill v. Gateway 2000, Inc. - same as ProCD, arbitration clause of shrinkwrap software license held b/c P retained software after inspection beyond return window so accepted by conduct; shows consumers and merchants are bound by this. If don’t want the term in, but want contract → argue no contract with respect to the clause but yes overall contract. If want the clause in → argue yes contract as to the terms b/c the UCC provision just says that they must “show agreement” Determine if there was a contract, when there are 2 forms (battle of the forms) (easier route when you have a contract but there is a add or diff term which wouldn’t survive) 1. Are additional or different terms expressly CONDITIONAL on offeror’s assent to the terms? a. CONDITIONAL → No acceptance under § 2-207(1), but continue b/c could be acceptance by conduct: i. NO CONDUCT recognizing existence of contract → No acceptance under § 2-207(3) ii. CONDUCT recognizing existence of contract → acceptance under § 2-207(3) 1. Were additional added in? a. Writings of the parties agree → terms added in b. Parties didn’t agree to those terms in writing → terms fall out & replace with UCC gap fillers 20  Contracts | Fall 2022 | Spann | Sam Rubinstein Klocek v. Gateway - promisor (buyer of computer) was not merchant, added provision was material term by D (seller) that P never agreed to. Therefore, additional or different terms contained in the Standard Terms did not become part of the parties’ agreement since no assent, and thus, no enforceable arbitration provision. b. NOT CONDITIONAL § 2-207(1) → i. Was there acceptance either by § 2-207(1): Definite and seasonable expression of acceptance = traditional offer and acceptance (forms sent to each other) Or a written confirmation which is sent within a reasonable time = oral agreement then written confirmation (buyer and seller on phone, they agree, and then send out forms). Oral agreement is the moment of formation. 1. No → No acceptance under 2. Yes → acceptance under [continue to determine if terms added] Determine if additional or different terms were added in 1. Was there a transaction between merchants? § 2-207(2) § 2-104 Cmt 2 Merchants = someone with requisite business knowledge a. No → Additional terms are proposals for addition to the contract and must be assented to by the offeror to be included and different terms don't’ become proposals b. Yes → terms can become a part of the contract without offeror’s assent as long as doesn’t fall into exception of § 2-207(2) 2. How do you interpret § 2-207(2) “additional terms” comments? a. Using Cmt 6 “Additional terms” does not include different terms [use this if you don’t want different terms added in] i. If terms proposed are additional, but not different → add into contract UNLESS 1. OFFER expressly limits acceptance (cannot add any additional terms EVEN if they are unconditional) 2. MATERIALLY alter the contract (hint: if an addition causes hardship) a. cmt 4 says terms negating standard warranties are material alterations 3. OR NOTIFICATION of OBJECTION given within reasonable time ii. If terms are different → knockout rule applies (conflicting terms cancel each other out 1. e.g. Richardson v. Union Carbide Indus. Gases, Inc.; furnace indemnification clauses b. Using Cmt 3 “Additional” means “additional and different.” [use this if you want different terms added in] i. Not added into contract if: 1. OFFER expressly limits acceptance (cannot add any additional terms EVEN if they are unconditional) 2. MATERIALLY alter the contract (hint: if an addition causes hardship) a. cmt 4 says terms negating standard warranties are material alterations 21  Contracts | Fall 2022 | Spann | Sam Rubinstein 3. OR NOTIFICATION of OBJECTION given within reasonable time ii. Otherwise, added into contract E. Clickwrap Agreements Instrumental Goal: We want to enforce contracts where the parties assented to the terms 1. UCC v. R 2D: a. Software is considered a good under the UCC, though amended version (which no one has accepted) is trying to exclude it → use UCC or R depending on what helps 2. Type of agreement a. Shrink-wrap = contract contained in shrink wrapping of product and opening and using product constitutes manifestation of assent i. See fluid acceptance b. Clickwrap → easier to show mutual assent by conduct c. Browsewrap (click into terms that take you to a different browser (terms are not right there on the page you’re on) → need to show hyperlink was obvious 3. Was there conspicuous notice and unambiguous manifestation of assent? a. OT: REASONABLY PRUDENT person UNDER THE CIRCUMSTANCES know to look? i. No → no contract with those terms ii. Yes → yes contract with those terms Since most people don’t read clickwrap licenses → the question is not whether a typical consumer reads them, but whether a large enough minority do Change “circumstances” or “reasonable” to get to the answer you want b. R 2D § 20/MOT: Can find someone to blame for not knowing to look or for hiding terms? i. No → no contract with those terms ii. Yes → enforce against person at blame (e.g. Duty to Read Rule consumer has duty to read before clicking agree, OR company KNEW that people never read these and tried to hide it) Meyer v. Uber Technologies, Inc; court thought hyperlink was conspicuous + user had duty to read so unambiguous assent (if you are uber’s lawyer you want this to be a clickwrap) Specht v. Netscape; No contract when consumer downloaded software b/c would have to scroll down to see terms → didn’t see terms → too ambiguous of assent so no arbitration provision in their contract (terms in the box are not commonly read or conspicuous, so silence is not acceptance) 22  Contracts | Fall 2022 | Spann | Sam Rubinstein F. Contracts of Adhesion / Form Contracts >>Contract of adhesion / Form Contract - standard terms are proffered on a TAKE-IT-OR-LEAVE-IT basis by a party with the MARKET POWER to refuse to contract except on the standard terms (e.g. Dore v. Arnold WW employment contract was standard form contract); Enforcement of Contracts of Adhesion/Form Contracts a. Won’t enforce/include/interpret that clause when: 1. Against public policy (imbalance of bargaining power) Richards v. Richards - won’t enforce exculpatory clause in contract when someone was injured and they had waived the truck company’s liability b/c it would violate public policy since extreme lack of bargaining power; shows how culturally we don’t know how to deal with contracts of adhesion 2. Doctrine of Reasonable Expectations: Enforce the contract UNLESS most people wouldn’t have consented if they knew the terms b/c terms exceed consumer’s reasonable expectations R 2D § 211(3) → can use R201 to determine if there is someone to blame for sneaking in terms Comes from Karl Llewellyn: there can be mutual assent to the overall transaction and the terms you actually negotiated “the dickered terms,” BUT with respect to boilerplate terms they don’t matter → court should enforce them as “reasonable terms” b. Won’t enforce/include/interpret that clause when 1. Duty To Read Rule - Rooted in the idea that action or inaction with reason to know results in a waiver of privilege of objecting to the legal consequences. However the duty may be raised or lowered, or even extinguished. Weisz v. Parke-Bernet Galleries, Inc; Ds gallery catalog terms were in a leading and prominent place and one who is buying from a public auction should have some sort of caution and have a duty to read. c. Policy arguments for and against contracts of adhesion: 1. Pros: mutual assent is impractical in form contracts that are now essential to our standardized e-commerce economy a. Standardization efficient: easier to understand contract terms that everyone uses them and knows where to look for terms b. If you believe in market ordering (markets are fair, economic efficiency) then this is efficient b/c i. Sophisticated buyer protection: even though no mutual assent to terms of contract of adhesion, on balance those terms collectively are terms sophisticated buyers would insist on → because sophisticated buyers would go after the best terms ii. Features of Contracts: (basically same thing) commodification argument → Easterbrook said when I buy a computer I don’t have any idea of speed of processor and I don’t care → i shouldn’t care about terms of the contract either b/c sophisticated contractors will similarly figure out if there are any problems 23  Contracts | Fall 2022 | Spann | Sam Rubinstein 2. Cons: Dilemma posed by contracts of adhesions is that unread, non-negotiated terms lack mutual assent essential to freedom of contract a. No Mutual Assent: People won’t necessarily read them or know what they mean even if they do read, uniformly to advantage of the seller, no bargaining power, exploitation → typically do not show mutual assent and this is contracts, are we going to bind people to terms they didn’t really assent to? b. Strongest counterargument against all these economists: the thing you forgot is that this is contracts (e.g. taking advantage of buyers would be a crime or tort); we know markets don’t work, that’s why we had to invent contract and tort law limitations where we thought it was giving us the wrong outcomes c. Standardization necessary for recontract: if in fact contracts are now going to be packaged (e.g. mortgages) → only works if you have them in standard form (contracts of adhesion) → isn’t this what caused mortgage crisis (yes, then not appealing) G. Partial Agreements (Open/Indefinite Terms) ​Instrumental Objective: Supplying terms and enforcing partial or indefinite agreements protects the reliance of parties who intend to contract, but may leave out or open some terms; most parties don’t manifest assent every to possible term 1. PRELIM agreement binding when: a. Type 1: bound to carry out terms even if formal instrument never executed (look to objective manifestation of intent to determine) b. Type 2: binding only to a certain degree because parties leave some terms open for further negotiation, do not commit parties to ultimate contractual objective but do commit them to negotiate open issues in good faith (agreement to agree) Main Street v. Binghamton Mets - baseball 60 day LOI; was Type 1 b/c letter outlines full binding intention/detailed, even if it was a Type 2, D breached by not negotiating in good faith (negotiating before exclusivity period ended since they signed with someone else right after) 2. FINAL AGREEMENT but has open terms, binding when: Under either UCC or R 2D, the fact that one or more terms are left open in a contract for sale does not fail for indefiniteness if the parties intended to make a contract and where there are reasonably certain terms for determining existence of a breach and appropriate remedy remedy. (R cmt b: remedy must be reasonably certain b/c freedom of contract and courts should not decide contract terms for people) R 2D § 33 / UCC § 2-204(3) a. Did the parties INTEND to make a contract? i. R 2D § 33 - if terms are left open or uncertain, may show lack of manifestation of intent b. Are terms reasonably certain for determining existence of a breach and appropriate remedy remedy? ALSO under UCC the only necessary term is QUANTITY. i. No → no manifestation of intent → no contract ii. Yes → Apply Gap Filler Rules 1. UCC § 2-305: Price 24  Contracts | Fall 2022 | Spann | Sam Rubinstein 2. UCC § 2-306: OUTPUT requirements & EXCLUSIVE DEALINGS a. actual output in good faith b. if exclusive dealing best efforts to buy and sell (e.g. unlimited data plan) 3. UCC § 2-307: delivery in single lot or several lots a. all goods in single delivery unless otherwise specified 4. UCC § 2-308: Place of delivery a. Seller’s place of business 5. UCC § 2-309: Time for delivery a. Time of shipment or deliver under a contract not provided or agreed upon shall be a reasonable time b. When contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party c. The obligation of good faith under this Act requires reasonable notification before a contract may be treated as breached because a reasonable time for delivery or demand has expired. 6. UCC § 2-310: Time for payment a. Payment when buyer receives goods, buyer allowed to inspect goods 7. UCC § 2-311: Options and Cooperation Respecting PERFORMANCE a. must be made in GOOD FAITH and within limits set by commercial REASONABLENESS. Sun Printing; final agreement must be definite to be enforceable; duration of price was indefinite so was unenforceable 25  Contracts | Fall 2022 | Spann | Sam Rubinstein IV. DEFENSES Defenses to the enforcement of the contract: Possible defenses for enforceability of a contract are (1) violation of the Statute of Frauds; (2) Mistake by the parties; (3) Changed circumstances; (4) Misrepresentation; (5) Duress; (6) Unconscionability; (7) Illegality and Public Policy; A. Statute of Frauds DEFINITION: The Statute of Frauds requires that for a contract within its scope to be enforceable, there must be a written memorandum signed by the party to be charged. It does not determine the existence of a contract, only the enforceability of a contract. PURPOSE: Encourage parties to memorialize certain agreements by putting them in writing. Serve formalism principles - evidentiary function (intended to prevent a person from enforcing a falsely alleged contract through fraud and perjury) and cautionary function (Not make hasty promises) CON: SOF can also be used to facilitate fraud and perjury in cases where an oral contract was actually made and a party wants to evade enforcement TEST FOR ENFORCEABILITY 1. Does the contract fall within the scope of the SoF? (if no, oral contract is enforceable) R 2D § 110 1. Contract for executor or administrator to answer for a duty of his decedent 2. Contracts for sale of an interest in land applies to contracts to sell land, dispose land, transfer interest in land, long-term leases, mortgage, etc. (purchasing a license to property is not applicable) E.g. Promise to grant an easement over land can be interest in land 3. Promises to answer for the debt, default or miscarriage of another (e/g/ suretyship or guaranty) Surety – someone who promises to pay someone else’s debt/guarantees for someone else (i.e. guarantor for leases) Does not apply to joint debtors or to people who take on responsibility for their own economic benefit 4. Contracts not to be performed within one year i. INCAPABLE of performing in one year → if it might or usually would take more than year, that’s not enough e.g.: I’ll give you $1000 if you graduate from law school → cannot happen within a year because ABA has rules that you have to do it 3 years 5. Contracts in consideration of marriage i. e.g.: I’ll marry you, if you marry me → does not count, bilateral contract ii. e.g.: I’ll give you a position in the company if you marry my son → this is consideration 6. Contracts for sale of goods if price excess $500 UCC § 2-201 2. Has the SoF been satisfied; meaning is there adequate writing? (if no → unenforceable) 26  Contracts | Fall 2022 | Spann | Sam Rubinstein 1. There is a WRITING to evidence the existence of a contract (not necessarily the contract itself) R 2D § 131 i. Can be more than one doc as long as they relate to same transaction 1. Can be after contract was formed ii. Does NOT mean written contract – simply must be some written evidence iii. Does NOT have to be formal nor executed for the purpose of evidencing a contract iv. Does NOT need to be the joint product of the pirates or even delivered to the other party 2. The writing’s CONTENT standards differ for UCC and CL, but UCC is preferred: i. CL: R 2D § 131 1. REASONABLE indication of the subject matter 2. Has to reveal who the parties are 3. Some description of the essential terms of the unperformed promises with reasonable certainty ii. UCC: § 2-201(1) 1. There is some writing 2. Is signed by the party against whom enforcement is sought 3. QUANTITY is only term that MUST appear (Not insufficient b/c it omits or incorrectly states other terms) a. Cmt 1: quantity need not be accurately stated, but will only enforce the amount that is stated 3. The writing has to be signed by the PARTY TO BE CHARGED i. UCC § 2-201(2) UCC MERCHANT EXCEPTION: writing can be enforced against a party that did NOT sign, when it otherwise satisfies statute AND… 1. Both parties are merchants, 2. One party signs and send written confirmation to the other in reasonable time, 3. The recipient has reason to know of its contents, and 4. Recipient does NOT give written notice of objection within 10 days of receipt a. Cmt. 3 after 10 days, no response operates as a writing would, and party who fails to answer cannot use the defense of the SoF b. “From” field intended to authenticate email satisfies signed writing requirement under cmt 1 against supplier & email is also §2-201(2) unobjected-to memorandum that is adequate if parties are §2-104 business-knowledge merchants; 3. Is there an exception? (no → not enforceable) 1. § 2-201(3) - Exceptions; contract is enforceable even if it fails to comply with SoF: i. Specially manufactured: when goods are specifically manufactured for buyer and not suitable for sale to others AND seller has either substantially started manufacturing them or has committing for their procurement § 2-201(3)(a) ii. Admits when a party admits in pleading, testimony or otherwise in court that a contract for sale was made, but the contract isn’t otherwise enforceable under SoF 1. Permits enforcement of oral contract, unless opposing party is willing to commit perjury § 2-201(3)(b) 2. You send me a demand for admission or contract, Spann says refuse to admit due to the SoF that we had a contract → not perjuring yourself… 27  Contracts | Fall 2022 | Spann | Sam Rubinstein iii. Part Performance/Promissory Estoppel? (Complete performance of a SEVERABLE part) payment made and accepted OR goods have been received and accepted b/c the fact that you performed is evidence of a contract 1. Cmt. 2: Receipt and acceptance either of goods or of the price constitutes an unambiguous overt admission by both parties that a contract actually exists 2. Promissory estoppel recovery of reliance damages is permitted even in the absence of an adequate writing to satisfy the statute of frauds (R 2D § 139) 3. Want to protect reliance so will enforce to prevent injustice e.g.: if I made 10 widgets out of the 20 I was supposed to make, only the 10 that have been shipped and excepted can be enforced e.g.: if I pay you for half car, under CL it would be enforceable, but here it wouldn’t be History ○ Purpose: encourage parties to memorialize certain agreements by putting them in writing (English Statute of Frauds of 1677) ○ Over time the statute evolves a common law flavor, and it means more than the statute ○ Jurisdictions adopted SoF to prevent fraud and perjury except LOUISIANA ○ Narrow over time → so more contracts can be enforced now without writing ○ Historical Exceptions 1. Part performance = we do have a contract, we do not have a piece of paper for SoF, but you have partly performed under the contract so it is an exception Fact that you performed is evidence of the contract → e.g. built half a building B. Misconduct Can make contract voidable Caveat Emptor “let buyer beware” - buyers and sellers should protect themselves when entering into contracts where they have equal access to information UNLESS: Laidlaw v. Organ; tobacco buyer who evaded question about knowing war was ending when entering into deal won b/c court assumes he is not lying (for jury to decide) and don’t want to upset contract (short of fraud, party isn’t required to disclose extra knowledge) 1. FRAUD a. Definition: Misrepresentation (assertion not in accord with facts) that induces reliance/is relied upon → makes contract VOIDABLE (rescission and everybody makes restitution) b. Goal: Because Assent was obtained by improper means, there is NO mutual assent and so the defrauded party didn’t allocate risk of other party committing fraud so would upset RISK ALLOCATION to enforce c. Relation to Tort: Fraud is the tort of deceit/misrepresentation. For most torts, the measure of damages is reliance damages. But for deceit, it is expectation damages (contract damages). Fraud is also a basis for rescinding a contract (defense to breach of contract) b/c no mutual assent R 2D §164. d. Elements of Fraud: 28  Contracts | Fall 2022 | Spann | Sam Rubinstein i. False Statements: Misrepresentation OF FACT (not opinion) R 2d § 159 with exceptions under R 2D § 169 when misrepresentation of opinion are fraudulent: a. Parties have relationship of such trust/confidence that reliance is justified b. Fiduciary relationship (special relationship) – a relationship that promotes the other’s interest, not your own (i.e. lawyers & clients) c. Superior knowledge – relying party believes the other party has special skill/knowledge they don’t have themselves ii. Scienter: Made with the desire to take advantage of someone (bad state of mind) R 2d § 162(1) a. (a) knows or believes assertion is not in accord with the facts, or b. (b) does not have the confidence that he states or implies c. (c) knows that he does not have the basis that he states or implies iii. Material: Misrepresentation is material if it would be likely to induce a reasonable person or the recipient to manifest his assent R 2d § 162(2) e. Types of Fraud: Scienter becomes less and less present as you go down hierarchy of fraud (non-disclosure is weakest for scienter, straight up lie is strongest) i. Lying: material misrepresentation that is relied upon ii. Concealment: fraudulent concealment of material fact doesn’t require lying but treated as if you lied R 2D § 160 [constructive fraud] Universal Health Services, Inc. v. U.S. - We should not enforce the contract with medicaid where it was performed through act of concealment of status of the medical professionals = type of fraud and no mutual assent E.g. Spann gets surgery and no one tells him before that a resident is going to do it → (1) concealment b/c didn’t consent to that (2) not concealment b/c medical professional is what you relied on and that’s what a resident is E.g. Put rug over termites: (1) concealment b/c unreasonable for parties to lift up rug, but (2) caveat emptor not concealment b/c house is a big purchase and you should inquire about termites ii. Nondisclosure R §161 Generally non-disclosure is not fraudulent if party does NOT affirmatively hide the truth (concealment). BUT there is a duty to disclose or else fraud when (aka constructive fraud when nondisclosure): 1. HALF-TRUTH: if part of truth is told, but another portion is not so as to create an overall MISLEADING impression (R 2d § 159 cmt b) 2. FAILURE TO CORRECT PAST STATEMENT: knows disclosure of fact is necessary to PREVENT some previous assertion from being a misrepresentation fraudulent or material (R 2d § 161); e.g. a. Was true, but later on not true b. Believed that it was true, but later learn that it was not true c. At first believed it was not material b/c had no reason to know of the other's reliance, but later learned of reliance 3. FAILURE TO CORRECT KNOWN MISTAKE of a BASIC ASSUMPTION: knows disclosure of fact is necessary to correct a false basic assumption on which the other party is relying (R 2d § 161) 4. FAILURE TO CORRECT A MISTAKE: knows disclosure of fact would correct a mistake of the other party as to contents or effect of a writing (R 2d § 161) 29  Contracts | Fall 2022 | Spann | Sam Rubinstein 5. RELATION OF TRUST & CONFIDENCE: other person is entitled to know fact because of a relationship of trust & confidence (FIDUCIARY relationship) (R 2d