What the fuck is a contract?

Determining mutual assent

- Mutual assent is determined under objective theory

o Reasonable person standard
 Subjective intent is irrelevant
o 2 prongs of objective theory:
 Reasonable person in position of the promise must believe that the other party
intended to be bound
 Promise must have actually so believed

Offer (part 1 of 2 of mutual assent)

- Promise made by one party, made to another party, to do or not to do something in the future,
contingent on the other party’s acceptance
o Objective theory
 Words, conduct, combination of each
- Creates the “power of acceptance” in the offeree
o Ability to create a binding agreement with that party’s assent alone
- Offer must:
o Be communicated
o Indicate a desire to enter in to the contract
o Directed at a person(s)
o Invite acceptance
o Create reasonable understanding that upon valid acceptance will arise
- Both prongs of objective theory must be met:
 Reasonable person in position of the promise must believe that the other party
intended to be bound
 Promise must have actually so believed

Uncertainties in offers

2 communications where uncertainties in offers arise:

- Price quotes
- Advertisements
o *generally, neither constitute as an offer*
  Instead, are invitations for offers

Terminations of offers

4 ways to terminate offers:

- Rejection
- Revocation
- Death (or incapacity)
- Delay

1. Rejection:
a. Once offer is rejected, cant be revived unless the offeror chooses to revive it.
i. “No thanks” – DEAD
ii. “I’ll give you $25 instead for the taco” – DEAD but counteroffer (creates new
offer that original offeror can accept or not)
2. Revocation (Offeror is king)
a. Offeror may modify the terms of the offer at any time; can withdraw/revoke
b. Once revoked, offer is DEAD; strips the power of acceptance from offerree
c. Indirect revocation: offeree learns from someone other than the offeror that the offeror
is no longer interested
3. Lapse (Delay)
a. Offer lasts as long as the offeror says it will last for – assuming it isn’t earlier accepted or
terminated by rejection or revocation
i. “good for 3 days” = expires after the third day
ii. If indefinite = reasonable time
1. General rule: when offer is communicated face-to-face, offer lapses
when the parties are no longer face-to-face
a. Can be overcome by contrary intention by offeror
4. Death
a. When offeror dies, the offer and “power of acceptance” terminates. (same goes for
offeree)
i. Doesn’t apply after acceptance
1. Ex. Die in debt, estate remains liable.

Option Contracts

- Offeree is interested in the offer but isn’t yet prepared to assume liability under contract by
accepting.
 - Promise to hold open an offer for X days is not enforceable unless supported by consideration
(pay to keep offer open)
o Protected for X days against withdrawal of the offer.

UCC offer

2-205

- Made by person in selling goods (merchant)

- Writing
- Provides offer will be held open (even without consideration) for period stated; if no period
stated, then period not to exceed 3 months
o Aka: “firm offer”

Reliance as basis for option

- Offer that foreseeably induces a detrimental reliance by the offeree may be enforced as a
binding option contract to prevent injustice despite absence of both:
o Promise of irrevocability
o Consideration
- Protects offeree’s reasonable reliance by implying a promise to hold the offer open and then
enforcing that promise

As a result:
o All offers are revocable
o All offers that are irrevocable are revocable unless
 Promise not to revoke is supported by consideration
 Promise is made enforceable by statue (UCC)
 Promise induces substantial reliance

Acceptance (part 2 of 2 of mutual assent)

- Acceptance: manifestation of assent objectively determined to be bound by the terms of an

offer.
- The exercise of the power of acceptance that brings the agreement into existence and
terminates the offeror’s ability to revoke
1. Rules of acceptance
 a. Offerree must have knowledge of the offer (intend to accept)
b. Only the offeree can accept the offer
c. Acceptance must be in the form authorized by the offer
 Intend to accept
o Offeree cant manifest assent to an offer that he doesn’t know about
o Since objectively determined, jokingly “I accept” is still effective as long as a reasonable
person would have believed such and the actual offeror so believed
o Completion of performance is sufficient to constitute acceptance
 Ex. Miracle hair grow example for use of 4 weeks; paid $10
 Who may accept
o Power of acceptance is personal to the offeree
o Contract liability is volitional
 Manner of acceptance
o Acceptance must conform to any and all requirements specified in the offer
o Offer will be treated as inviting acceptance in any manner reasonable in the
circumstance, including return promise or performance of what is requested by the
offer

Communication and effectiveness of acceptance

General rules

- Every offer is either unilateral or bilateral

o Unilateral: promise for performance (Rewards, contests, etc)
 Promisor cant revoke once promise has begun performance
o Bilateral: promise for promise
- Acceptance by an offer by return promise isn’t effective until communicated to the offeror
o Exception: if offeror has waived

Mailbox Rule

- Acceptance is effective upon DISPATCH (not receipt)

- Even if acceptance is authorized, the offeree will lose the benefit of the mailbox rule if he is
careless in sending his reply (misaddressed)
- IF REJECTION LETTER ARRIVES FIRST, NO CONTRACT
- Dispatch rules doesn’t apply in option contracts since the offeree is already protected
o In summary of dispatch rule:
 Applies when there is gap between dispatch and receipt of acceptance
 Activated when offeree uses the impliedly authorized means of communication
 Applies only to acceptances
 Doesn’t apply when acceptance follows rejection or counter offer
 Doesn’t apply if offer is irrevocable (option contract)
 Doesn’t apply to instant mail (email)
Restatement

- Offeror must be aware of acceptance

- Acceptance by instant communication is held to same standard as face-to-face
- *where gap between transmission and receipt is minimal, dispatch rule dissolves
- Offeror’s duty to perform is discharged if the offeree who has rendered performance fails to
take reasonable steps to ensure that eh offeror learns of the performance
- Partial performance as a form of promissory acceptance, so long as that possibility isn’t
precluded expressly by the terms of the offer
- If the offer does clearly and unambiguously preclude acceptancy by any means other than full
performance, then the commencement of that performance creates an option to reasonable
amount of time to finish job

Imperfect acceptances (and counteroffers)

- Mirror image rule:

o Offeror should not be bound to any other terms other than those which she has
expressed a willingness to deal
 Cant alter the terms of the original offer; thus would become counteroffer
- General rule:
o Silence cant constitute acceptance
 Silence is ambiguous
- Silence, however, can be implied in fact (past conduct).

Electronic contracts

Rolling contracts

- Deal comes together in stages over time rather than all at once
o Ex. Warranty in box of TV

Electronic Assent

Clickwrap agreements

- Active role by user who clicks “I accept” and agree to vendor’s license and standard terms
Browsewrap

- Merely using the services of , obtaining information from, or initiating apps on the site; agreeing
to be bound by the services.

Scrollwrap

- Compel the user to scroll through the agreement before being able to signify assent

Signinwrap

- User is “notified” of existence and applicability of the site’s terms of use when proceeding
through the site’s sign-in or log-in process

Factors of electronic assent:

- Whether the site draws the user’s attention to the terms

- Whether the site is designed to make the user inclined to examine the terms
- Whether the user’s assent is capture in some fashion
- The proximity of the hyperlink the vendor’s terms

3 keys to becoming bound:

- Adequate notice
- Opportunity to review
- Consent

Mutual Understanding

- Mutual misunderstanding
o Different meaning but same term
 1. Neither party knows or has a reason to know the meaning attached by the
other OR
 2. Each party does know or has a reason to know the meaning attached by the
other
o Ex. 2 different armadillos

Indefiniteness of terms

- Court must balance the private intent of the parties against the contractual intent.
- Governing standard is that if either:
o The terms are so indefinite that it would be difficult or impossible for the court to detect
a breach OR
 o If breach detected, would be difficult or impossible for the court to fashion a remedy
 Then contract is “too indefinite”

Indefinite analysis

- 2 steps:
o Whether the parties intended to enter into a legally binding deal (and if so)
o Whether there is a reasonably certain basis for the court to fashion a appropriate
remedy
- Assuming that both parties intended to be bound, still enforce the deal by concluding that
performance must occur within a reasonable time and the price would be the going market rate
for comparable services

Agreements to Agree

- When everything goes according to the plan, the parties will later come to an agreement on the
open term, and everyone is happy

Precontractual liability

- Contractual liability is voluntary or consensual by nature, so until the parties have actually
agreed to be bound to the terms of deal, either of the parties may walk away from the
negotiations without liability
- Some cases found the letter on intent may give rise to a mutual obligation at least to continue
negotiations in good faith
o Neither can they simply walk away from further negotiations without making a serious
effort to come to agreement as to the remaining terms
o Liability doesn’t attach until mutual assent has been achieved

Is the deal enforceable? (promissory liability)

- Consideration: something given in exchange for the promise that is bargained for
- If nothing given, no consideration
- GIFT PROMISES ARE NOT ENFORCABLE
- The promise must induce the consideration
- If the promise incurs a legal detriment, necessarily the promisor has obtained a legal benefit
- Past consideration is not good
o Theres no consideration at all

Doctrine of Nominal consideration

- Where the alleged consideration is a sham, and both parties know it – have deliberately disguise
what in substance is a gratuitous promise to look like a bargain—enforcement should be denied.
 - It ins only when there is no element of exchange – the promise is truly a gift – that enforcement
will fail for lack of consideration

Consideration may be from for received by a third party

- As long as they are bargained for in exchange for a promise

o Cosign for debts

Compromise or surrender of claims as consideration

- Relinquishment of a claim constitutes a detriment and thus consideration, so long as either the
claim is objectively well-founded or, even if groundless, the claimant honestly believes it is valid
o Good faith belief

Mutuality of obligation and illusory promises

- When each party is bound to the other by a promise there is mutuality of obligation.
- Illusory promise: no obligation on the promisor
o No supported with consideration
o Based on condition that cannot occur

Modification and the Pre-existing duty rule

- Preexisting duty rule

o Promise to do what a party is already bound to do, or refrain from doing something she
has already agreed not to do, could not constitute consideration for a contract
modification

Consideration substitutes (and more)

Material benefit rule

- 3 exceptioins to the rule about past consideration not being good consideration:
o Debt barred by statute of limitations
 Reaffirming obligation to pay a debt
o Debt discharged in bankruptcy
 Reaffirmed debt isn’t enforceable
o Promise to perform a previously voidable obligation
 Discovering fraud on car, reaffirming promise to buy car
- Enforcement based on purely moral obligation is inconsistent with the doctrine of consideration
 o Exception: circumstances where promise made in recoginition of past benefits may be
enforceable: material benefit rule
- Implied in law:
o Duty imposed by law to pay for value of benefit conferred on defendant by plaintiff
- Recovery in restitution isn’t available for ‘mere volunteers’; where the benefit is conferred
gratuitously w/o any reasonable expectation of compensation

Promissory Estoppel

- Promise that foreseeably induces the reliance on the party of the promise may be enforced
despite the absence of consideration
o Promise
o Justifiable and detrimental reliance on promise by promise
o Promisor should have expected the promise to change her position by taking some
detrimental action
o Enforcement is necessary to prevent injustice
- Based on a promise which relates to future behavior
- Forma an affirmative basis for imposing liablity on the promisor – it is its own claim for relief

Remedies;

- When promissory estoppel is being asserted to enforce a promise made either during the course
of prelim negotiations or as part of an agreement that isn’t enforceable other than because of
an absence of consideration usually appropriate to restrict damages to losses from reliance on
the promise
- When invoked as substitute for consideration, stronger case for expectation damages

Note: if typical contract exists, unnecessary to reach for promissory estoppel

Equitable estoppel

- Invoked to bar a person, who misstates certain facts, from later asserting the truth of the matter
earlier misrepresented against a party that relied to her detriment on the first statement
- Raised as a defense claim by another
- Equitable is the shield and promissory estoppel is the sword

Substitute for consideration

 - Charitable subscriptions may be enforced without proof of reliance; based simply on the
existence of the promise

Defenses to enforcement

Defenses are based on:

- Form of agreement
o Statute of frauds
- Flaws in agreement process
- Content in agreement

Statute of Frauds

o Must be in writing to be enforceable

 What is the purpose
 Which agreements covered by (within) SOF
 Does it satisfy the SOF
 When agreement is within w/o writing?
1. Purpose
a. Prevent false claims when oral agreement
2. Which agreements are covered?
a. MYLEGS
i. Time period: if cant be performed within a year
ii. Fixed time: whether can be completed in a year
1. Perform at birthday later that year
iii. Task: theoretically possible to be performed in a year?
1. “to be” = unlimited resources to use
a. Ex. Moving statue of liberty
iv. Lifetime: K for lifetime employment? No. not performable in a year b/c may
die
3. If writing, does it satisfy SOF?
a. Look to
i. Language
ii. Contents
iii. Who signed
- Contents:
o Compare language with statute to the question
- Who signed
o Must be signed by defendant (UCC)
- When enforceable w/o writing?
o Part performance
 Payment of all or part of purchase price
 Possession of land OR
  Improvments on the land
4. Reliance
a. Oral promise to be enforceable b/c of reliance, notwithstanding the statute of
frauds

Defenses on flaws in agreement process

- Duress
o “gun to the head”
o Most performance is excused by economic duress; ok to capitalize on economic
advantage
o For duress, need to find:
 Person tring to enforce the pressure AND
 Person trying to avoid enforcement of the contract had no reasonable
alternative
- Misrepresentation of existing facts
o Even innocent misrepresentations as to existing facts can make a contract voidable
- Nondisclosure
o Nondisclosure w/o concealment is generally irrelevant
o Nondisclosure coupled with concealment Is treated the same as a misrepresentation.
- Mistake of existing facts
o Mistakes do not involve tacky behavior
o Harder to get out of an agreement because of your own mistake
 Mutual mistake
 Mutual mistake of material fact, then the agreement is voidable by the
adversely affected party
 Court will not grant relief for mistake if the party seeking that relief
bears the risk of their mistake
 Court will deny relief if:
o Bad judgement or ignorance
o Not material OR
o Under the circumstances the party seeking relief should bear
the risk
 Unilateral mistake
 A clerical or mathematical error, when error is fairly obvious

Defenses based on what agreement says

- Illegality
o “leaves them where it finds them”
 o Doesn’t have to be criminal law
 Could be unlicensed to do work
 However, if license could be obtained by anyone who paid a fee,
conduct may be enforced
- Public Policy
o Can be determined by case law
o Covenants to compete aren’t fairly common
 Holding on case depends on the main facts relaing to the reasonableness of the
business needed for the protective agreement and the reasonableness of the
duration and geographic scope of the proctective agreement
 Typically discusses:
o Freedom of K
o Restraint of trade
o Freedom to compete
o Right of employee to earn livelihood
- Unconscionability
o Specific term in the agreement is unenforceable but the remainder of the K is
enforceable
o Procedural
 Problems with the agreement process
o Substantive
 Problems with the terms of the K
 To be tested as to the time of the agreement (fair?)
o Depends on factual circumstances
- When addressing question about enforceability, look for info about the agreement process
o Compare these facts w/ duress, misrepresentation, nondisclosure, and procedural
unconscionability

Parol Evidence

- Rule of substantive law about what terms and obligations survive the formation of a K.
o IF APPLIES, all prior obligations and terms related to K are DISCHARGED. DONE WITH.
RIP.
- Basic rule
o Binding integrated agreement discharges prior agreements to the extent that it is
consistent with them
o Binding completely integrated agreement discharges prior agreements to the extent
that they are within its scope
- Integrated agreement
o Complete and final.
 Can mean 1 term in the contract or it can refer to the entire set of promises that
comprise the contract.
  If written, then this agreement is partially integrated
 Formation of that contract didn’t discharge prior agreements as to
matters other than price and subjects
 Complete integration
 Complete statement of the terms related to the deal
o Courts look for “integration” or “merger” clauses such as
 “this is a complete expression….
 “this writing contains all the terms related……
- 2 exceptions:
o Ability of the party to show that there is an oral condition precedent to the
effectiveness of an agreement
o Parol evidence can be used to explain or provide the meaning of the written document,
even if completely integrated.

Overview of parol evidence

I.C.E.

- I. integrated?

- if so, prior terms are discharged

- Completely integrated?

- if so, no prior agreements survive and no supplemental evidence

-Exceptions?

- fraud? Mistake?

Ambiguity and External evidence

- Plain meaning vs external evidence rule

o Plain meaning:
 Courts only look “within the 4 corners” of the document
o External evidence
 Parties may bring inevidence that is external or “extrinsic” to the contract in
order to show ambiguity in more cases than under the plain meaning rule
- When confronted with what is “ambiguous”and what is “clear”:
o First, apply the plain meaning rule
 If so use parol evidence
  If not, cant use evidence external to create ambiguity
o Second, use external evidence test
 Whether a reasonable person would think the alleged ambiguity was genuine r
spurious
 If so, court will allow extrinsic evicence
 If not, exclude parol evidence

Interpretative maxims

- Contract should be construed against its drafter

- Look to common sense

Dealings to resolve ambiguity

- Courts often look to past dealings: course of dealing

- If performance arises w/in one contract: course of performance

Contracts of Adhesion

- No bargaining permitted and which offer no choice but to accept the terms presented
o Not always unenforceable
- Courts narrowly construe the terms in favor of the party who had no choice but to accept the
terms offered
- If a party attempting to enforce a particular provision of an adhesion contract knew, at
formation, that the other party didn’t know of the particular provision’s existence, and also had
a reason to believe that the other party wouldn’t have assented to the provision if they had
known about it, then the court will decide to delete the provision from the K.

Implied terms

- Implied by a court: achieve the parties intent and further public policy

Terms implied to achieve parties intent

- Courts will often provide missing terms when convinced that the parties intended to contract
but overlooked or omitted an essential term that can be inferred from the circumstances
o Can be implied by obviously omitted terms Lucy Lady
o Trade usage

Terms implied to achieve policy goals

 - Implied covenant of good faith and fair dealing
o Obligation to refrain from taking (or not taking) actions that would deprive the other
party the “fruits” of the contract
 Honest, satisfaction, good faith

When will performance be excused?

Other guy’s total nonperformance

- Failure to perform a promise when due

Other guy’s saying he isn’t going to perform (anticipatory repudiation)

- Repudiation: indication of not going to perform

o Repudiating before time to perform: anticipatory repudiation

Anticipatory Repudiation

- If material, excuses further performance by the other guy just like in case of actual failre to
perform at agreed time
- Form of breach of contract
- Requires unequivocal indication of intention not to perform
o Employee doesn’t have to wait until start date to bring suit

*if the non breaching party honestly but wrongly interprets an equivocal statement of non
performance as an unequivocal indication of nonperformance, and in response stops her performance
in response, the non breaching party becomes the breacher******

- in essence, if one party stops his performance because he honestly but incorrectly interprets the
other party’s post-contract words and conduct as rising to the level of an anticipatory repudiation, then
it is the first party who has actually committed the anticipatory repudiation.

Common law material breach concept

- Only a material breach excuses further performance of a contract governed by common law.
o A material breach is A MAJOR FUCK UP.
 Can be material because of the quantity of performance (or lack thereof)
- If the performance is substantial, then the breach is not material and vice versa
o There cant be both substantial performance and material breach
 Nonoccurrence of an express condition

- What the fuck is an expressed condition?

o Language or words in a contract
 I will employ you to suck my ass on condition that I secure the proper leasing
space.
o The language you are looking for is language that excuses the contract’s other promises
than creating new promises
 I will employ you to suck my ass on condition that I secure the proper leasing
space.
o Nonoccuurence or nonsatisfaction of an expressed condition excuses performance
 Unless other party acted in Bad faith; ex. Prevention
o The magic words to watch for
 If
 Only if
 Provided that
 So long as
 Subject to
 In the event that
 When
 Until
- How an expressed condition is satisfied
o Satisfied ONLY IF COMPLIED WITH STRICTLY
 If not satisfied, connected contract is excused
 Excusing nonoccurrence of a condtion when that nonoccurrence of the
condition would cause a disproportionate forfeiture
- EXCUSED BY PREVENTION
o Satisfaction was prevented from happening
- EXCUSED BY WAIVER
o Ex. Your expected bid doesn’t meet the final purchase price

Expressed condition precedent, subsequent, & expressed conditions and constructive

conditons

Expressed condition precedent

- Prerequisite to the parties’ performance obligations

o Must happen BEFORE
 If wedding ring is no less than 10k, ill pay

Expressed condition subsequent

 - Post contractual liability to perform
o Ill sell you 10k per week until Winston wins the Kentucky derby

MAIN DIFFERENCE BETWEEN PREDENENT AND SUBSEQUENT

- Precedent: nonoccurrence excuses any contract performance

- Subsequent: occurrence of a condition excuses continuing performance

MAIN SIMILARITIES BETWEEN PRECEDENT AND SUBSEQUENT

- STRICT COMPLIANCE WITH BOTH SETS OF TERMS

Expressed conditions and constructive conditions

Constructive conditions

- Implied from the language of promise in the contract and are subject to the material breach rule
o Made up by the court based on circumstances
o Ensure each party will receive prpomised performance of the other party by making the
respective promises mutually dependent on one another

Expressed condition

- Not a promise and cant be breached

- Either satisfied or not.

Impossibility or impracticability

- Impossibility: no ability to perform

- Impracticability: unduly burdensome; extreme. (instead of 20 minute trip, jumps to 18 hour trip)

Remedy

- Compensates nonbreaching party for consequences of breaching party’s actions

- Specific Performance
o Usually money damages since courts are reluctant to compel performance (slavery)
- Adequacy/Inadequacy of remedy
o Where unique item, inadequacy is presumed (land, famous paintings, rare cars)
 Requires conveyance of property

Expectation interest
 - Put non breaching party in as good a position as he or she would have been in had the contract
never been performed
o Different between the pay of someone else versus what another would have done
 $25-15 = $10
- Computing:
o Loss in value + other loss - cost avoided – lost avoided total breach
o Loss in value + other loss partial breach

Reliance and Restitution

- Court will look to the value of amounts spent by the nonbreaching party in reliance on receiving
performance under the contract from the breaching party
o Restitution: value of performance up until breach