Contracts I Outline 1. Contract a. A legally binding exchange of promises between parties that the law will enforce.

Contracts must be definitive, require a clear intent to be bound by both parties to be enforceable. 2. Elements of a Contract a. Agreement i. Offer ii. Acceptance b. Consideration c. Competent parties d. Legal purpose e. Statute of frauds satisfied i. Does not have to be in writing to be enforced, except in certain cases like real estate 3. Offer a. Must state subject matter and price b. Bilateral Promise for a promise c. Unilateral Promise for performance d. Must show intent to be bound i. The words and acts judged by a reasonable standard, manifest an intention to be bound, it does not matter what the real unexpressed feeling may be. (Lucy v. Zehmer) e. Whether something constitutes an offer is judged under the objective reasonable person standard. An advertisement is not an offer in itself. (Leonard v Pepsico) f. A mere statement of minimum selling price is not intent to sell. One must specifically agree to sell for it to be valid. (Owen v. Tunison, Harvey v. Facey) g. A price quote is not enough for a final offer because there may be limited quantity (Fairmount Glass) h. There is specific performance when there is a specific number identified. QUANITTY is the key difference between this and other cases. (Leftkowitz) i. Mistakes that would make enforcement of the contract unconciousable rescind the contract. (Donovan) 4. Acceptance a. When a mode of acceptance is specified and followed the contract is enforceable (Fairmount Glass) b. An offer may not be properly accepted by commencing work unless that is the mode of acceptance specifically demanded by the offer. (White v Corlies & Tift) c. If no time is specified for termination than the offer expires at the end of a reasonable time. (Ever-Tite Roofing Company)

d. If there is a suggested method of performance than performance of another kind could still be enforceable (Allied Steel). e. UCC 2-206(1)(b) If the seller ships to the buyer non-conforming goods and gives notice that the shipment is an accommodation, the seller is not in breach of contract and is not obligated to deliver goods that conform to the buyer's order. (Corinthian Pharmaceutical) i. If the improper shipment is sent with no notice of accommodation, it is an acceptance and a breach of contract. (TV example) f. Open offer to sell terminates when the offeree learns that the offeror has already agreed to sell to someone else. (Dickinson v. Dodds). i. If the promisee gives some sort of consideration than it becomes an option contract and limits the promisors power to revoke the offer. g. An offer is said to be bilateral if it is ambiguous as to whether it is unilateral or bilateral. (Davis v. Jacoby) h. If the seller revokes the offer before there is an acceptance than there is no contract. Partial performance is enough to show acceptance if it is done after the offer was made, premature performance is not valid performance. (Ragosta v. Wilder) i. UCC 2-207 i. If an acceptance does not use expressly conditional language, but contains terms additional/different to the original offer then if those terms do not materially alter the contract they become part of it. If they materially alter the contract then they do not become part of it. (Dorton) ii. If expressly conditional language is used by the seller 2-207(1) says there is no contract and you jump to 2-207(3) the knockout rule, which states that if both parties recognize the existence of the contract, then there is a contract, and the terms are the ones in which the two parties agreed. All terms not agreed upon, whether material or immaterial, are knocked out. (ITOH) iii. In California, additional and different are same thing iv. Everywhere else 1. If terms are different, apply knock out rule 2-207(3) so gap filler replaces item if there is a gap filler, and the contract becomes only the agreed upon terms. 2. If terms are additional, apply throw out rule 2-207(2) and throw out material change but rest of contract is same. v. Box top licenses are not enforceable even if they are sent with every package because they were not part of the initial contract. (Step Saver) 5. Consideration a. To apply there must be either i. Benefit to the promisor or ii. Detriment to the promisee b. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for a promise to him. (Hamer v. Sidway)

c. For consideration, the claimant must subjectively believe in good faith that the claim is valid, and that belief must be reasonable from the standpoint of a reasonable person in the position of the claimant. (Fiege v. Boehm) d. Past performance is not valid consideration to render a contract enforceable. (Feinberg v. Pfeiffer) e. A gratuitous promise is enforceable if the promisee justifiably relies on the promise. f. Moral obligation is sufficient consideration when the party making the promise gains something, even if through a third party, or he to whom the promise is made loses something. (Mills v. Wyman) g. In order to get around past consideration either i. Someone's life was saved and if that person makes a promise then it is valid or ii. the benefit conferred by the promisee must be substantial h. Consideration exists where an at-will employer and an at-will employee continue their employment relationship, rather than terminate it, after the employer imposes a new requirement for employment. (Lake Land) i. An agreement that lacks mutuality of obligation lacks consideration and is unenforceable. (Mattei v Hopper) j. Consideration can be established by an implied promise to use best efforts. 2-306 i. 2-306(1) says that a change that is unreasonably expected is not part of the contract. 6. 2-306 (Standard of conduct) a. In an exclusive contract the best efforts is the automatic standard of the party. (Wood v. Lucy) b. That standard is made by looking to comparable companies. c. 2-306(1): says that any change that is unreasonably expected is not part of the contract. 7. Promissory Estoppel a. Need 1)A promise 2)reasonably relied on to the point where it is a detriment to the promisee or benefit to the promisor and 3)enforcing the promise is the only way to avoid injustice (Ricketts v. Scothorn) b. A promise which the promissor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of promisee (Feinberg v. Pfeiffer) c. Promisee can only recover the damages that were caused as a result of the reliance on the promise, extra damages cannot be obtained. (D & G Stout v. Bacardi) d. Drennan Restatement: 87 (2): 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. (Drennan v. Star Paving) e. Just because a mistake is made in the promise, if somebody reasonably relies on it, and it would be unjust to revoke it, the promise is still enforceable. (Drennan) f. Leading an offerree on, letting them think a promise is made, sets the offeror up for promissory estoppels case. (Red Owl Stores). (D told P 18k would be sufficient, then asked for 34k after he had moved and sold his old store) 8. Quasi-Contract

a. Court looks to see if there is an unjust enrichment in good faith to the party benefiting and lack of an agreement. (no promise by either party) i.e. Painter paints wrong house but the homeowner is aware and lets it happen. (Cotnam v. Wisdom) 9. Statute of Frauds a. A writing is not required as a general rule of contracts, SOF just states the instances where a writing is necessary. b. An oral contract that does not say, in express terms, that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of indefinite duration for the purpose of the statute of frauds. Like a contract of indefinite duration, such a contract is enforceable because is outside the proscriptive force of the statute regardless of how long completion of performance will actually take. (C.R. Klewin v Flagship)
c. Even though it would take more than a year, there was no express statement of duration, than statute of frauds does not apply.

d. So partial performance that is proven and indicates that there was an agreement makes the SOF requirement of a writing void and there is contract enforceable. (Richard v. Richard) e. 2-201 (2) In order to get around a writing, a written confirmation of the order must be received within a reasonable time, and the recipient fails to object in writing within 10 days. (St. Ansgar Mills) f. Suretyship i. See flowchart 8 ii. Collateral agreement 1. Son buys car for his own use. Later cannot make payments. Dealership gets father to pay if son defaults, in lieu of repossession. 2. Must be a signed document here in order to enforce the father paying the debt iii. Primary or original liability contract 1. Father tells dealership he will pay if son cannot at time car is bought, and son later does not pay. 2. Father has to pay, no signing required, because he was there at the beginning of the contract iv. Main purpose doctrine 1. Son buys car. Later cant pay. Dealership gets father to pay for the car if son defaults. Son works for fathers business and uses auto exclusively for father s business. 2. No writing, because the main purpose of the car was to benefit the father, so he would have to pay anyway. v. Novation 1. Son buys car for his own use. Later he cant make payments. Dealership gets father to agree to take over payments and the son is released of all liability, so a new contract is formed with the father as the payer. 2. No signing required, because the new contract was formed.

g. When an oral promise is given to take over a debt is given primarily or solely to serve the promisors own interests the SOF does not apply. (Central Ceiling v. National) h. Normal contract law says you are out of luck if you rely on a promise for future interest in land and there is no signing; however, the court may enforce the promise without a signed document if there was reasonable reliance, an obvious promise, and unjust enrichment would occur if the promise was not enforced. (Monarco v. Lo Greco) 10. Capacity a. Minority (Infancy) i. The contract of a minor, other than for necessities, is either void or voidable at his option. Only the minor can opt out, the other party is forced to keep the contract if the minor does not want out, this is a one-sided contract. (Kiefer v. Fred Howe Motors) b. Mental Infirimity (Oterle) i. Can be established if the person is completely insane, then the contract is void. ii. If the person is not completely insane, then they must prove that they 1) were unable to act in a reasonable manner in relation to the transaction and 2) the other party was aware of it. iii. The mental capacity to contract depends on whether the allegedly disabled person possessed sufficient reason to enable him to understand the nature and effect of the act in issue. (Cundick) 11. Overreaching a. Pre-existing duty rule i. When a party merely does what he has already obligated himself to do, he cannot demand additional compensation, due to lack of consideration. (Alaska Packers) ii. This is an exception to pre existing duty rule, if an event is unforeseeable, and the D intentionally and voluntarily yields his prior contract rights, by entering into a new contract, even for the same duties, it is enforceable. (Watkins & Son) b. Duress i. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of wrongful threat precluding the exercise of his free will, and the threatened party must demonstrate that they could not obtain the goods from another source of supply and that the ordinary remedy for breach of contract would not be adequate. (Austin Instrument) c. Undue Influence i. The person must be in a state of exhaustion and emotional turmoil that prohibits him from exercising proper judgment and also there must be an application of excessive strength by a dominant subject against a subservient object. The key difference between this and Duress is that the two parties have some kind of special relationship, like family or boss and worker. (Odorizzi) d. Concealment i. The law cannot provide special rules for all situations and can hardly attempt to determine liability according to the varying probabilities of the existence of different possible defects in the subjects of trade. How much is necessary to

disclose is determined on a case by case basis, and it is not necessary to make the D disclose every possible defect. (Swinton) ii. There is no duty imposed upon one party to a transaction to speak for the information of another, if he does speak with reference to a given point of information, voluntarily or at the others request, he is bound to speak honestly and to divulge all the material facts bearing upon the point that lie within his knowledge. (Kannavos) e. Misrepresentation i. A statement of a party, in which you have faith and confidence, having superior knowledge may be regarded as a statement of fact although it would be considered an opinion if the parties were dealing on equal terms. (Vokes v. Arthur Murray) ii. If the issue materially affects the value of the home, and it is not something that the buyer can find out easily, the seller has a duty to disclose. However, if it something well known and usually easy to find out about, you dont have a duty to disclose. (Reed v. King) 12. Unfairness a. Equitable remedies will not be enforced against one who suffers from such hardships and oppression. The inadequacy of the consideration is so gross to be unconscionable, and the free use of land is taken away, which courts steer away from, they want land to be used as best as possible. (McKinnon v. Benedict) b. If a contract is signed, and at the time the contract is entered into it is fair and equitable, and the duration and obligation of the contract was unclear, it is enforceable, even if the duties are only performed for a short period of time. (Tuckwiller) c. Relative values of the consideration in a contract between two businesses dealing at arms length, without fraud, will not affect the validity of the contract. (Black Industries) 13. Unconscionability (OCallaghan) a. Must be an adhesive contracts, take it as it is b. Must be unreasonable i. Unreasonableness can be found if one the ruling would allow bias for one side ii. When a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that the consent, or even an objective manifestation of consent, was ever given to all the terms. (Williams) iii. According to UCC 2-302, not only can the clause of a contract, but the contract in total can be found unconscionable as a matter of law if the price of the goods is so high as to be unreasonable. (Jones) c. Oppressive i. With arbitration clauses, courts look at the equality of bargaining between the two parties, and if one party has significant bargaining power than an arbitration clause may be found oppressive. Especially where the arbitration clause only favors the employer and does not reciprocate to the employee. (Armendariz)

ii. If the term is so oppressive, then they are not concerned about the lack of bargaining power, if it is not that oppressive, then they are concerned with the bargaining power. d. Shock the Conscience (Doti likes this best) i. When terms of the contract are so unconscionable when read that they shock the conscience ii. Where the parties are dealing at arms length and there were no unclear or hidden terms in the agreement, and no unusual terms that shock the conscience, all leading to the conclusion that the contract accurately reflects the reasonable expectations of the parties. (American Software) 14. Performing in Good Faith a. Do not make mistake that good faith applies to formation of a contract, it does not, it only applies after the contract is formed. b. Once a contract is formed, both parties have an implied duty to do their part fully and good faith (Dalton) c. When a party acts in accordance with a standard practice of their industry a court may find that they did not act in bad faith, they acted under reasonable commercial standards of fair dealing in their trade. (Eastern Air Lines) d. A party may be acting in good faith if a party knows about a provision and does not warn the other party about that provision. (Market Street Associates) e. Under UCC 2-306 best efforts is implied in a contract, and just losing money is not enough to constitute stopping using best efforts, unless it is hurting the company so bad that they will go under (Bloor v. Falstaff Brewing) f. An agreement which is silent as to duration and does not deal with specific termination ideas is construed to be terminable by either party at the end of a reasonable time. Courts look to the sniff test to see if the contracting party is acting rotten when they make a promise in a contract and then break the promise shortly after (Lockewill) 15. Public Policy a. The courts will allow a contract to be void for being in contravention of sound public policy, but they will only do so delicately, and free from doubt. (Bovard: Sale of merchandise that is used for illegal drugs) b. A contract that is legal on its face and does not call for unlawful conduct in its performance is not voidable simply because it resulted from an antitrust conspiracy. (X.L.O. Concrete) c. Covenants not to Compete i. Covenant is enforceable only if 1) it is not greater than is required for the protection of the employer 2) it does not impose undue hardship on the employee, and 3) it is not injurious to the public. (Hopper) ii. California Business and Professional Code 16600: Every contract by which anyone is restrained of engaging in a lawful profession, trade, or business, is void. 1. Exceptions to this are for the sale or dissolution of corporations, partnerships, and LLCs. Also, you can bar people from exposing trade secrets.

iii. An employer cannot lawfully make the signing of an employment agreement, which contains an unenforceable covenant, a condition of continued employment. (Edwards v. Arthur Anderson) 16. Parol Evidence Rule a. Three types of Ambiguity i. Plain Meaning: Language of the contract is clear and unambiguous, as well as being integrated, parol evidence is not allowed, the contract is the only means of determining the true intentions of the parties. ii. Latent ambiguity: When the meaning of the document is reasonably susceptible to different meanings, due to either trade practices or just unclear or hidden language, the courts may allow parol evidence in to determine what the true meaning was. iii. Patent Ambiguity: When the meaning of the clause is so obviously ambiguous that the only way to truly understand it is to bring in supporting parol evidence, the courts allow it. b. Where parties, without any fraud or mistake, have deliberately put their engagements in writing, the law desires the writing to be not only the best, but the only evidence of their agreement. (Gianni) c. If the court finds that the document is only a partially integrated document, such as a deed which only covers basic information, they can allow parol evidence in to support the true intentions of the parties. Doti thinks that if the deed mentions anything about the subject, parol evidence should not be allowed. (Masterson) d. The idea here is that if there is a totally integrated document then parol evidence cannot come in (Gianni) but if the document is partially integrated then you can bring in parol evidence (Masterson). e. A court has the power to reform a written contract and make it correspond to the understanding of the parties. The mistake must be mutual to the parties of the contract, and the fact that one party denies the mistake does not remove any possibility of finding mutual mistake, especially where the party begins performance of the intentions of the parties and then stops. (Bollinger) f. The evidence may be admissible to prove that the clause was reasonably susceptible of the meaning intended by the D, especially if there are standard trade practices, because in this case it just said property, had it said anyones property than parol evidence would probably not be allowed. (Pacific Gas and Heating) g. If there is a trade practice that is custom in the industry and the contract as written does not clearly state the trade practice but it states something different, the court will usually allow parol evidence to come in and show that in that trade, the implied meaning is different than the expressed meaning. (Ermolieff) h. UCC 2-202, parol evidence is adopted for the sale of goods. Evidence can come in if it is to show course of performance, trade, or dealing or would be certain to have been included in the writing.