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Mutual

Assent

Offer Acceptance

Rule for Special How to accept Termination of


most cases offer rules (requirements) power to accept
(see other chart)

Communication of
Manifestation By the To the Proper
Present Commitment of Present
offeree to terms Manner
Commitment
the offeror

Reasonable person test,


looking at:
Unilateral Bilateral Silence as Rules to
acceptance determine
manner
Language Context in which Performance Promise to
& to Accept Accept
Used language used

Rule if doubtful
whether ONLY in
Advertisements, Requests for Letters of Intent
unilateral or the
Circulars, etc. Bids
bilateral? following
situations

GR: Not offers GR: Not offers GR: Not offer


except with and considered unless party makes
specific offeree invitations to it clear they are to
Bilateral
or a limited qty offers be bound

Offeree takes Reason to Previous dealings Acts inconsistent


benefit believe silence have allowed w/ offerror's
is accepted silence ownership

Certainty of Terms
Required
If Offer is If Offer If Offer is
prescribes suggests silent re
manner manner manner
Subject Price
Parties Matter Quantity (Common Any Any
Law) Must comply reasonable reasonable
manner manner
Not Required (Use as Evidence of Contract)

Interpret language to
Time Place determine which

Last Updated: 10 December 2008


Termination of the
Power to Accept

Revocation Lapse Rejection Death or Counter-


Incapacity Offer

GR: Time stated


in offer or
reasonable time

Rule for face-to-


face GR: offer Manifestation Effect:
lapses at the end not to Accept Terminates power Elements
of the to accept
conversation

Direct Indirect Irrevocable


Revocation Revocation Offers
UNLESS

Defined: Offeror Contrary Offeree manifests


takes definite actions intention is intent to take it
inconsistent with an expressed by OR under further
intention to enter into either party advisement
the contract

Elements

From the Relating to Proposing


Inconsistent Reliable Offer offeree to the the same Different
Act & Information offeror subject Bargain

Bilateral Unilateral Firm Offers (U.C.C.)


Offers between merchants to buy or sell
Option Contract Offeree starts goods in a signed writing which gives
(Trade $ for time) performance assurance that it will be held open is not
(Creates an revocable for lack of consideration
option contract) during time stated or reasonable time (not
to exceed 3 months).

Last Updated: 11 December 2008


Consideration

GR: Bargained-for Recurring


exchange Problems

Forbearance Pre-Existing Moral &


(Withhold some Adequacy Duty Past Illusory
legal action) Rule Considerations Problems

GR: A party who agrees to do GR: Agreeing to GR: Promises cloaked in


GR: Invalid claims what he has already legally do what one has consideration and are
Forbearance are good
obligated himself to do has given already done in the actually one-sided is not
is good consideration,
no consideration past is not good good consideration
consideration if: GR: Courts will consideration
not usually inquire
into the adequacy
of consideration, Elements
UNLESS
except:
Plaintiff Claim has a Free to Promise
asserts claim & reasonable perform at cannot restrict
in good Faith Basis Promise promisor's promisor's
Addition of Settlement of Minority Rule: Unforeseen
own discretion by
Genuine New a Genuine change in circumstances
discretion either:
Duties Dispute and the extra compensation
must be fair

Good
Insufficiency
Faith
Like-Kind (items not Rip & Tear U.C.C.: No Pre-Existing
Nominal Contracts Duty Rule OR
Exchange capable of
being owned) (see U.C.C. § 1-103 Duress)
Reasonable
Efforts

OR

Reasonableness

Last Updated: 03 December 2008


Promissory Estoppel

Elements
See Restatements (Second) Uses
Contracts § 90

#1 As a substitute for consideration


Promisor should Promise does Injustice can only
Promise reasonably expect induce such action be avoided by
& to induce action or & or forbearance & enforcing the
forbearance promise #2 As a substitute for a writing
required by a statute of frauds

EXCEPTION #3 As a way of making bids (offers)


A charitable subscription irrevocable
and marriage settlement is
binding without proof that
the promise induced action
or forbearance #4 As a way of policing unfair
negotiation behavior

Measure of Damage
The court has the discretion to granting partial or full enforcement.
The remedy granted for breach may be limited as justice requires. In other
words, sometimes a party may be limited only to reliance damages.

Last Updated: 20 January 2009


Defenses

Undue Deception Statutes of Mistake Illegality Unconscionability Deception


Duress
Influence Fraud

Mistake of Mistake as to Mistake has Procedural Substantive


Traditional Economic fact by both the basic a material
parties assumption effect on K
(Process) (Terms)
Duress Duress
(substance, (quality, exchange
unconscious function, OR "Shocks the
ignorance) purpose) conscience
Gross
Absence of of the court"
Precludes inequality of
Precludes meaningful
bargaining Extremely
Wrongful Exercise of Wrongful Exercise of choice
power Unfair K Terms
Act Free Will Act Free Will

Considerations: Think Categorical:


1. Take-it-or-Leave it 1. Wealth
Threat or use of Causation: The 2. Opportunity for
Threat of No practical No feasible 2. Education
violence, captivity, threat or use legal advice 3. Experience
or other wrongful subjugated victim's
breach in bad legal remedy & alternatives 3. Legalese 4. Access to legal advice
act or threat will faith exists exist 4. Deceptive Sales

Argument: π could have said "no"

Considerations:
Assumption of Risk 1. Marketplace
2. Parties Respective Risks
Legitimate 3. Competition
reasons to
threaten breach Contract allocates risk to a party

Examples OR
Party contracts knowing that she
has limited knowledge of the
Party has a facts (conscious ignorance)
Other party Change in good contract
breached Circumstances OR
defense
Court allocates the risk to the
Last Updated: 10 December 2008
party because it is just to do
Remedies

Liquidation (Agreed) Coercive Equitable


Restitution Damages Remedies
Damages (see separate chart) (Specific Performance)
(see separate chart) (see separate chart)

Measure Limitations
Rest (2d) § 347

Avoidability Foreseeability Certainty

Special EXISTENCE AMOUNT


GR: Damages Arise in the Circumstances Prove the amount
based on harms that ordinary course Prove damage
∆ must have a
OR & of damages by
a party could have of events actually occurred
submitting enough
evaded without (naturally flow) reasonable because of the
evidence to allow a
reason to know breach
reasonable burden, reasonable estimate
risk, or humiliation
are not recoverable.
Additional Rules
1. Construction: After notification of a breach, the π
must reasonably stop performance. See Luten Bridge. New Business Rule: A new
2. Employee: Employee need not take an inferior job to business can never claim lost
address a wrongful termination. See Hussy and Parker. profits damage due to a
breach. (Only applies to some
jurisdictions.)
Argue what constitutes a new
business.
General Damages Costs & Losses
(Benefit of the + Special Damages - Avoided
Bargain) (Expenses Saved)
Additional Rules
1. Emotional Distress: Only recoverable for breach
when a high level of foreseeability is present.
2. Apply & Distinguish Cases
- Ford (Tractor Light): Expect some damages, but actual
Reliance Consequential damages are disproportionate to what was foreseeable.
- Boiler: Only recover damages that are foreseeable.
- Driveshaft: ∆ only responsible for damages knows or
should have known.
Essential: Incidental: 1. Property damage
Money spent Money spent in 2. Personal injury
preparing or anticipation of a 3. Lost resale profits
performing a OR contract and 4. Lost use profits
contract dealing with
breach fall-out

1. Benefit of the bargain too uncertain.


Situations where you 2. Contract is a losing contract.
can receive reliance 3. "Break-even" contract.
only damages 4. Public Policy.
Last Updated: 10 May 2009
5. Promissory Estoppel.
Three Steps in Damages Analysis - See Restatements (Second) § 347

Step 1: What kind of breach did the defendant commit?

1. Breach by Non-Performance?

2. Breach by Defective Performance (Partial Performance)?

Step 2: What damages might the plaintiff be entitled? 4P's: Put the Plaintiff in the Performance
Position

1. Benefit-of-Bargain Damages (General Damages)

A. Breach by Non-Performance
(General Damages = Get - Give)

B. Breach by Defective Performance


(General Damages = FMV Promised - FMV Received)

2. Plus (+) Essential and/or Incidental Reliance Damages

a. Essential Reliance: Money spent preparing or performing a contract

$ spent in performing or in preparing to perform

b. Incidental Reliance: Money spent in anticipation of a contract and dealing


with breach fall-out

$ spent anticipating other party's performance


$ spent dealing with breach fallout

3. Plus (+) Consequential Damages

Property damage
Personal injury
Lost resale profits
Lost use profits (It must be reasonable to the seller/buyer that the item will be
resold)

4. Minus (-) Expenses Saved (Cost and Losses Avoided)

Unauthorized damages: (1) punitive damages, (2) emotional distress, and (3) attorney
fees (unless specified in contract).

Step 3: Do any limitations justify reducing (-) P's damages recovery?

Avoidability
Foreseeability
Certainty

Last Updated: 10 May 2009


COMMON LAW
General Damages for Commonly Made Contracts

Breaching
Nature of Contract Type of Breach Measure of Damages
Party
Land
Non-Performance Buyer = K Price - FMV of Land
Purchase & Sale
Land
Non-Performance Seller = FMV of Land - K Price
Purchase & Sale

Construction Non-Performance Owner = K Price - contractor's cost of performing

Construction Non-Performance Contractor = FMV of contractor's services - K Price


Defective = COR1 (unless COR1 is grossly disproportionate to DIV2); OR
Construction Contractor
Performance = COR causes economic waste

Employment for
Non-Performance Employer = K Price
Specific Term
Employment for
Non-Performance Employee = FMV of employee's services - K Price
Specific Term
1
Cost of Repairs (COR): captures what you lost; gets you where you were promised to be; more accurate,
except in economic waster cases
2
Diminution of Value (DIV): determined by expert witnesses (not as accurate)

UNIFORM COMMERCIAL CODE (U.C.C.)


General Damages for Commonly Made Contracts

Breaching
Nature of Damages Type of Breach U.C.C. § Measure of Damages
Party

BUYER'S BREACH BY NON-PERFORMANCE. All possible measures of seller's BOB damages for buyer's
non-performance: K - FMV, K - Resale $, Profit, K Price (only under extraordinary circumstances).

Benefit of the Bargain Non-Performance Buyer § 2-708(1) = K Price - FMV (OR:= Get - Give)

Profit Non-Performance Buyer § 2-708(2) = Price Paid - Cost to Make

Profit Loss (Actual) Non-Performance Buyer § 2-706(1) = K Price - Resale Price


Reasonable & Good
Non-Performance Buyer § 2-709(b) = K Price
Faith Resell w/o Resell

SELLER'S BREACH BY NON-PERFORMANCE.

= FMV Price - K Price


Benefit of the Bargain Non-Performance Seller OR
= Cost of Cover - K Price

Last Updated: 10 May 2009


Remedies

Coercive Equitable
Damages Restitution Liquidation (Agreed) Remedies
(see separate chart) Damages (Specific Performance)
(see separate chart)

Elements
(Two-Part Test
GR: Value of Substantive
the ∆'s gain at
of Validity)
Claim
π's expense. (Unjust Enrichment)

EXCEPTION: Applies only to Damages were difficult The amount stated is


a party in breach - Elements to estimate at the time reasonable in light of
Value of the ∆'s gain minus the that the contract was either estimated damages
damages caused by the breach. made. or the actual damages.

Situations where a The ∆ gained Without


party can recover benefit at the π compensating
& would be
restitution damages expense
(enrichment) unfair (unjust)
only

1. As an alternative to damages.

2. A losing contract.

3. Unjust enrichment not tied to a valid contract.


a. Alternative to a tort claim.
b. $ paid for performance under void or voidable contract.
c. Good Samaritan (services rendered by a medical doctor by an unconscious person)

4. To a party in breach.

Ground for Claim Measure of Restitution

Alternative to damages for K

Alternate to tort

Performance under a non-contract Value of defendant's gain

Losing K

Doctors to unconscious patients

Restoration to party in breach (Value of defendant's gain) minus (Damages caused by breach, general damages)

Last Updated: 10 May 2009


Remedies

Liquidation (Agreed) Coercive Equitable


Damages Restitution Damages Remedies
(see separate chart) (see separate chart)
(see separate chart) (Specific Performance)

Adequacy Discretionary
Requirement Considerations

Uncertain Undue burden on the


∆.

Fairness of bargain.

Irreplaceable Undue Burden on


contract subject the Court.

Higher degree of
certainty.

Uncollectable Public policy.

Laches and unclean


Injunctions Against Breach hands.
1. Analyze adequacy requirement (see chart above).
2. Analyze discretionary considerations (see chart above).

Covenants Not to Compete (see p. 416)


1. Must be part of a legit agreement;
2. Must be necessary to protect legit employer interests (good will, trades secrets,
or other proprietary information); and
3. Cannot be unduly burdensome regarding geography, duration, amd restricted
activity.

Limitation
13th Amendment: It is against the 13th Amendment for a court to order an
individual to work for an employer for whom the individual does not wish to work.
Last Updated: 10 May 2009
PAROL EVIDENCE RULE
STEP 1: Determine if the PER applies to the evidence.
The PER ONLY applies to prior or contemporaneous oral evidence or prior written evidence for which there is no separate
consideration.

Is it oral or written? Was it made prior to, during or Was it for separate
after the making of the writing? consideration?

If the PER does NOT apply, STOP. The evidence is admissible.

STEP 2: Determine if the writing is integrated at all.


An agreement is integrated if it is in writing and final as to at least one term.

If the agreement is NOT integrated at all, STOP. The evidence is admissible. An agreement that is NOT
integrated at all does not bar ANY evidence.

STEP 3: Determine if the agreement is completely integrated.


There are three approaches. Apply each separately.

1. Williston Two-Part Test (Narrow). NOTE: A merger clause creates an irrebuttable presumption of
complete integration. If no merger clause, then apply two-part test:
a. Look at the writing and analyze whether it was adopted as a complete, exclusive statement.
b. Look at the term at issue and analyze whether it was natural for the parties to have omitted it.
(Analyze the six Hatley naturalness factors on page 2 of the note-taking guide.)
2. Corbin All-Evidence Test (Broad). Look at the agreement, the term and all surrounding circumstances
and determine if the parties intended a complete integration.
* Merger clause is evidence of complete integration.
3. U.C.C. § 2-202. (Broad, like Corbin) Intent of the parties unless it is certain that parties similarly
situated would have included the term.

If the agreement is completely integrated, SKIP to STEP 5.


If the agreement is NOT completely integrated, the evidence is admissible depending on whether it is consistent or
contradictory. GO to STEP 4.

STEP 4: Determine if term is consistent with or contradictory to the writing.


There are two approaches. Apply each separately.

Reasonable Harmony Test: Courts look at what the Complete Negation Test: Evidence is consistent
parties have already agreed to and use as evidence to see as long as it does not completely negate any term
if any contradictions. (Narrow - bars more evidence) in the agreement. (Broad - bars less evidence)

If the term is consistent or NOT contradictory, STOP. The evidence is admissible.


If the term is inconsistent or contradictory, GO to STEP 5.

STEP 5: Determine if the evidence is of a type that is always admissible.


Evidence of contract defenses, of an oral condition precedent, or to help resolve an ambiguity is always admissible.
There are two approaches to identifying ambiguities. Apply each separately.

Four Corners Rule: An agreement is ambiguous only if it P, G & E Rule: An agreement that is unambiguous
appears so on its face. (Narrow - bars more evidence) on its face can be shown to be ambiguous by
extrinsic evidence, so long as the agreement is
reasonably susceptible of the alleged meaning.
(Broad - bars less evidence)

If the evidence falls into any of the above categories, the evidence is admissible.
Categories of K
CONTRACT INTERPRETATION ISSUES
Ambiguities

1. Patent

General Ambiguity Recurring Ambiguity (Appearing on the


Problems Problems face of document)

2. Latent
(Ambiguity revealed
Grammatical only after learning
Problems Words or Conflicts Same as General Problems additional info)
(Sloppiness) Phrases with Among BUT
(e.g. commas, Multiple Terms Arise in Special Contexts 3. Gap in K
modifiers) Meanings
(Contract is silent or
incomplete regarding
an issue)

Creation of Creation of
Force
an an Time of the
NAME OF Express Constructive
Majeure Divisibility
Clauses Essence Clauses
CONTEXT Condition Condition

* Preference to find CC * Express Condition? TEST


Construe
EFFECT
Preference for a Pro: It is so central that, 1. K divided into pairs;
USE promise 1. Following stated or narrowly and without it, nothing important 1. If divisible, breach of
and
&
relative dates.
"other such is left so it must be an EC. one party generally not
SPECIAL 2. If the parties can
causes" must be Con: Boilerplate - time is 2. Parties agree that each excuse further
Against unclear perform at the same time,
RULES important but not so item in each part is an
and ambiguous they must. within the same important to mean if performance.
language 3. "Work before Pay." category agreed equivalent of the
performance is late, the K is
4. Nature of Transaction.
over.
other item in that part. 2. If not divisible, breach
of one party may excuse
performance of
dependent obligation.

AND

USE GENERAL CONTRACT


INTERPRETATION RULES
(IN ORDER OF PRECEDENCE)

1 2 3 4 5 6 7 8
Course of Course of Trade Usage Contra
Performance Dealing Interpreting Interpret the K Proferentem
Negotiations
(Parties must be in the Ks to make to reconcile
(Performance of between Public Policy
trade and usage is so them any
the K at issue and parties (Performance of prevalent that anyone inconsistencies
neither party has past Ks between in the trade would reasonable (Interpret against
objected) the same parties) know it.) the drafting party)

© 2009, Carolina Academic Press - Used with Permission


Checklist for Identifying Patent Ambiguity
1. Try the easy way first. Look at the parties’ contract and their dispute and try to figure
out what each party would say the contract means.
2. Focus on what you know about the dispute between the parties. Look for a basis in the
contract itself for either party claiming the other party breached the contract.
3. Look for ambiguous words or phrases. Use your dictionary to help you develop
alternative and competing meanings for what you believe to be the key words in the
contract provision at issue.
4. Look for grammatical ambiguity. Make sure you understand what word in the contract
each modifying phrase is modifying. If you discover that a phrase may modify more
than one word, you may have found the ambiguity.
5. Look for conflicts between terms.
6. Try to translate the contract term(s) into your own words. If you cannot find the
ambiguity, the act of translating may reveal it. At least, translating contract into your
own words will demonstrate your ability to articulate at least one party’s contract
meaning contentions.

© 2009, Carolina Academic Press - Used with Permission


Conditions

Express Constructive
Conditions Conditions

GR: Courts prefer Did the non-breaching


Was the express GR: Preference for
promises when the party get most of what
condition Clauses finding constructive Types & Purpose
language is he was supposed to get?
accomplished? conditions.
ambiguous. (Core Assessment)

CREATION
RULES
1. Pay when Paid: Ambiguous— (In order of precedence)
must use the surrounding Rest. (2d) Contracts § 241 CC help courts determine
Magic K circumstances. 1. Extent non-breaching order of performance.
Words OR Interpretation 1. Follow stated or relative party did not get her essential
(See Page 2) Rules 2. Time is of the Essence dates. K benefit. 1. CC Precedent: second
* FOR EC: If something is of the party has no duty to perform,
essence, it is so central that without it 2. If parties can perform at 2. Extent non-breaching unless other party performs.
nothing important is left. the same time, they must. party can get damages to
Perfect Performance: Express * AGAINST EC: Boilerplate clause substitute for loss of the K 2. CC Concurrent: parties'
used by the parties to mean that time 3. "Work before pay." benefit. performances are due
conditions must perfectly occur, for is important BUT do not mean that if simultaneously—each must
example: performance is a day late, the contract 4. Courts consider the 3. Extent breaching party render/tender performance in
1. Happen when suppose to happen; is over. nature of the transaction. will have wasted time and order to claim a breach by
money. the other party.
2. Done in the correct manner
3. Satisfaction: Creates an express
condition. Standards to evaluate: 4. Likelihood breaching 3. Independent: Terms are
SUBSTANTIAL
* Fancy, Taste, or Judgment: made party will cure deficiencies. unconditional and parties
PERFORMANCE
in "good faith." must perform.
* Commercial Value: reasonable 5. Extent breaching party
EFFECT
person in determining satisfaction. acted in good faith.
1. If an insubstantial
(operative fitness or mechanical performance, then a
utility). material breach and CC
has not occurred.

2. If a substantial
performance, then NO
material breach and CC Last Updated: 10 May 2009
has occurred.
Express Condition Language Chart

(1) Language which all courts would (2) Language which all courts (3) Language about which
agree create express conditions: would agree do not create express reasonable lawyers could argue
conditions: either way:

╚ Afterwards
1. Conditional (-ed) on 1. Covenant 1. After

╚ Dependent upon* ╚ Behind


2. Contingent upon 2. For

╚ Later
3. Pledge

╚ Assure or Assurance ╚ Subsequently


3. Expressly conditioned on 4. Promise or Promising

╚ Expect
4. If

╚ Warrant
5. If and only if 2. As
6. On the condition that 3. As soon as

╚ Expect you to
7. Only if 5. Shall (or Shall Not) 4. Pay when paid

╚ With the understanding that* ╚ Must


8. Provided that 5. So that

╚ Ought to
6. Time is of the essence

╚ Adequate* ╚ Will (have to / be able to)


9. Satisfy or Satisfied or Satisfaction 7. Until

╚ Please (-ing)*
8. Upon

╚ Suffices (-ive)*
5. Swear 9. Upon receipt of payment
6. Time is of the essence 10. Warranty

╚ Although
10. Shall be a condition precedent to 7. Vow 11. When

╚ Subjugate to* ╚ At which time


11. Subject to

╚ Predispose* ╚ Considering that


12. Unless 12. While
13. Unless and until

* - Weaker variation found in the


dictionary. A practitioner runs a risk that a
court may find these terms ambiguous (see
e.g. column 3).

Last Updated: 10 May 2009


Excuses

Force Majeure
Nonoccurrence of Estoppel Prevention Impracticability / Clause
Waiver
a prior condition (Bad Faith) Impossibility
(Act of God)

GR: Condition GR: Beneficiary of a GR: Beneficiary of a GR: Beneficiary of a GR: Impracticability
due before the condition takes action EFFECT
condition condition causes the clause. Lists
condition at 1. If material part, then performance
intentionally gives up indicating an intent condition NOT to circumstances in
issue did not excused, remainder of K discharged.
the right to enforce not to enforce the occur, or otherwise which a party can
occur the condition. condition and that has breach her duty of avoid having to
2. If NOT material part, then that
action causes the good faith. perform the K without
performance is excused, remainder of K
other party to rely. penalty.
is NOT discharged
EFFECT EFFECT

Discharge or Performance EFFECT EFFECT EFFECT #1


Breach Excused Narrowly construe
Performance Excused Discharged and "other such
Excused (depending causes" must be
on significance) within the same
category to be
effective.
ELEMENTS
EFFECT #2
For For
Express Express & Constructive If something in the
Conditions Conditions list happens, then you
Only do NOT need to prove
impracticability or
impossibility.

Event makes
Occurrence is performance Nonoccurrence of Party had no fault in Party has not assumed
unforeseen event. impracticable (must event is basic the occurrence. the risk, unless:
radically change the assumption.
obligation).

Shell: ⅓x increase (33% increase) (finding K assigned the Event was Event was
increased cost is NOT excessive or risk foreseeable within the
unreasonable). party's control

Howard: 10 to 12x increase (1000% to 1200%


increase) (finding increased costs is excessive
and unreasonable). Last Updated: 10 May 2009