1L_Contracts_Handout

First Year Success: Contracts

Contracts:
Overview
Professor Ryan Williams
Contracts
I. Formation
II. Defenses
III. Remedies
I. Contract Formation
● Offer
● Acceptance
● Consideration
= CONTRACT
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Offer
1. The Offeror (the person making the offer) can revoke the offer any
time prior to acceptance.
2. Need consideration ($$) to keep it open.
3. If you do/have that, it becomes a common law option K.
Acceptance
- You just say yes!
But if it’s a unilateral contact, performance is acceptance.
Ways to reject an offer?
1. Flat out rejection
2. Counteroffer (common law)
3. Revocation
4. Death of the offeror
5. Lapse of time (#reasonable)
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Consideration
Bargain for Exchange
A promise to do something you're not legally obligated to do, or a
promise not to do something you have the right to do.
Consideration – what doesn’t count
- Nominal Consideration
- Illusory promise
- Gratuitous promise
- Pre-existing Duty Rule
II. Contract Defenses
● Mistake
● Statute of Frauds - MYLEGS
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Statute of Frauds
Marriage
Year (1)
Land
Executor
Guarantee (unless for benefit)
Sale of goods ($500 or more)
II. Contract Defenses
● Mistake
● Statute of Frauds - MYLEGS
● Misrepresentation
● Impossibility
● Impracticability
III. Contract Remedies
I. Expectation Damages: putting the aggrieved party in as good a
position as it would have expected to be in had both parties
performed the K.
II. Reliance Damages: putting the aggrieved party in as good a
position as it would have been, if it had never contracted with
the breaching party.
III. Restitution Damages: restoring to the aggrieved party any
benefit it conferred to the breaching party prior the breach; or,
put another way, forcing the breaching party to return any
unearned benefit it received from the aggrieved party.
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III. Contract Remedies: Non-Monetary
IV.
Recission: essentially undo the contract.
V. Specific Performance: make the breaching party perform.
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Contracts:
Formation
Professor Ryan Williams
Goals:
- Understand Contract Formation
- Examine and explore the difference between a K
and Promissory Estoppel
Contract Formation
● Offer
● Acceptance
● Consideration
= CONTRACT
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Offer
- A UNILATERAL OFFER is when the offeror requests acceptance of
the offer by the performance of an act rather than by a promise
to perform the act.
- The offer is accepted only when the offeree performs the
requested act.
Unilateral or Bilateral?
Unilateral Contract
Offeror makes
an offer that calls
for performance
Bilateral Contract
Offeror and offeree
exchange mutual
promises
Look for action
Look for a promise
Common law
1. The Offeror (the person making the offer) can revoke the offer any
time prior to acceptance.
2. Need consideration ($$) to keep it open.
3. If you do/have that, it becomes a common law option K.
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Let’s try an example . .
On Monday, Aaron decided to sell his used sedan. Denise had always
admired the car, and inquired about buying it. Aaron said he was firm
at $8,000. Denise thought this was a good price, and told Aaron she
wanted it, but needed a few days to think it over.
The next afternoon, Denise actually approached Aaron with $8,000
and said here you go. Aaron said “you’re too late. I sold it to someone
else this morning.”
Does Denise have a cause of action against Aaron?
Let’s try an example . .
On Monday, Aaron decided to sell his used sedan. Denise had always
admired the car, and inquired about buying it. Aaron said he was firm
at $8,000. Denise thought this was a good price, and told Aaron she
wanted it, but needed a few days to think it over.
The next afternoon, Denise actually approached Aaron with $8,000
and said here you go. Aaron said “you’re too late. I sold it to someone
else this morning.”
Does Denise have a cause of action against Aaron?
No! What was the problem?
Acceptance
- You just say yes!
But if it’s a unilateral contact, performance is acceptance.
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Ways to reject an offer?
1. Flat out rejection
2. Counteroffer (common law)
3. Revocation
4. Death of the offeror
5. Lapse of time (#reasonable)
Consideration
Bargain for Exchange
So . . . , what does that mean?
A promise to do something you're not legally obligated to do, or a
promise not to do something you have the right to do.
More Consideration, considerations
- Forbearance to sue counts
In other words, giving up a right to do something, you legally
have the right to do counts
- Look for bargain for exchange!
(watch out for illusory promises)
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Pre-existing Duty Rule (common law)
Performing a legal duty which is already owed under contract
does not constitute consideration.
Promissory Estoppel
A party may recover on the basis of a promise made when the
party's reliance on that promise was reasonable, and the party
attempting to recover detrimentally relied on the promise.
The reliance must be substantial, and justice would be served by
enforcing the promise.
So even though there is no bargained for exchange, if I relied on
your promise, to my detriment, then I can recover in PE.
Does my boy Ed owe Alice, Officer Brown, or Charlie a car
wash? Why or why not?
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Is there any enforceable agreement?
Ed is the owner of the newly opened Ed’s Custom Car Wash, which was located 20 miles
outside of Ed’s hometown. One day, while grocery shopping, Ed was greeted by his
childhood friend, Alice. The two chatted for some time, and as he was leaving, Ed said,
“Come on by my new business tomorrow, and I’ll give you a free car wash.” Alice replied,
“Thanks. By the way, we’ve got a few extra tickets for the game tonight; if you want them,
they’re yours.”
A few minutes later, Ed ran into Officer Brown, who worked in Ed’s hometown. Ed told him,
“Officer Brown, would you mind driving by my house soon and making sure everything is
okay? If you do, I’ll give you a free car wash tomorrow.” Officer Brown, who was already
about to begin patrolling Ed’s neighborhood, replied, “I accept your kind offer.” Officer
Brown then left the store and began his routine patrol, which, as always, promptly took him
by Ed’s house, where everything was in order.
When Ed eventually returned home from shopping, he saw his next-door neighbor, Charlie.
Ed waved at Charlie and said to him, “Charlie, I’ll give you a free car wash tomorrow at my
new car wash.” Charlie replied, “Thanks, I’ll take you up on that.”
As Ed arrived at work the next day, he found a long line of cars already waiting at the car
wash. He called Alice and Officer Brown and told them that he would not be able to give
them free car washes. He then saw Charlie, who had left work and driven for a half-hour to
get to Ed’s car wash, was waiting in line. Ed immediately went up to Charlie and told him,
“I’m sorry, but I am not going to give you a free car wash.”
Alice
Is there any enforceable agreement between Ed and Alice?
Well, I only know two types of enforceable agreements . .
Contracts and Promissory Estoppel
Alice
Ed is the owner of the newly opened Ed’s Custom Car Wash, which
was located 20 miles outside of Ed’s hometown. One day, while
grocery shopping, Ed was greeted by his childhood friend, Alice. The
two chatted for some time, and as he was leaving, Ed said, “Come on
by my new business tomorrow, and I’ll give you a free car wash.”
Alice replied, “Thanks. By the way, we’ve got a few extra tickets for
the game tonight; if you want them, they’re yours.”
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Alice
Ed is the owner of the newly opened Ed’s Custom Car Wash, which
was located 20 miles outside of Ed’s hometown. One day, while
grocery shopping, Ed was greeted by his childhood friend, Alice. The
two chatted for some time, and as he was leaving, Ed said, “Come on
by my new business tomorrow, and I’ll give you a free car wash.”
Alice replied, “Thanks. By the way, we’ve got a few extra tickets for
the game tonight; if you want them, they’re yours.”
Officer Brown
A few minutes later, Ed ran into Officer Brown, who worked in Ed’s
hometown. Ed told him, “Officer Brown, would you mind driving by
my house soon and making sure everything is okay? If you do, I’ll
give you a free car wash tomorrow.” Officer Brown, who was already
about to begin patrolling Ed’s neighborhood, replied, “I accept your
kind offer.” Officer Brown then left the store and began his routine
patrol, which, as always, promptly took him by Ed’s house, where
everything was in order.
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Charlie
Consideration for K?
When Ed eventually returned home from shopping, he saw his
next-door neighbor, Charlie. Ed waved at Charlie and said to him,
“Charlie, I’ll give you a free car wash tomorrow at my new car
wash.” Charlie replied, “Thanks, I’ll take you up on that.”
Detrimental Reliance for PE?
As Ed arrived at work the next day, he found a long line of cars
already waiting at the car wash. He called Alice and Officer Brown and
told them that he would not be able to give them free car washes. He
then saw Charlie, who had left work and driven for a half-hour to
get to Ed’s car wash, was waiting in line. Ed immediately went up
to Charlie and told him, “I’m sorry, but I am not going to give you a
free car wash.”
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Contracts:
Defenses
Professor Ryan Williams
Contract Defenses
● Mistake
● Statute of Frauds
● Misrepresentation
● Impossibility
● Impracticability
Two Types of Mistake
Mutual Mistake
Unilateral Mistake
Both parties are
mistaken as to a
material element
that goes to the
heart or essence
of the bargain.
Remedy: Rescission
Contract enforceable
against mistaken party
unless non-mistaken
party knew or should
have known of the
other’s mistake.
Remedy: Contract
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Statute of Frauds
Marriage
Year (1)
Land
Executor
Guarantee (unless for benefit)
Sale of goods ($500 or more)
Let’s try one . .
A college senior rented a house on campus. The senior wanted to sell all of his furniture in the
house before he graduated. A sophomore agreed to buy all of the senior's furniture for $600.
The senior signed a piece of paper stating: "I, Senior, agree to sell all of my furniture to
sophomore for $600." The sophomore did not sign the paper. The next week, the senior
changed his mind and decided to take his furniture with him when he graduated. The senior
informed the sophomore that their deal was off.
Can the sophomore enforce the agreement?
(A) Yes, because the senior signed an agreement.
(B) Yes, because there was sufficient consideration for the agreement.
(C) No, because the sophomore did not sign the agreement.
(D) No, because the senior is not a merchant.
SOF
A college senior rented a house on campus. The senior wanted to sell all of his furniture in the
house before he graduated. A sophomore agreed to buy all of the senior's furniture for $600. The
senior signed a piece of paper stating: "I, Senior, agree to sell all of my furniture to sophomore for
$600." The sophomore did not sign the paper. The next week, the senior changed his mind and
decided to take his furniture with him when he graduated. The senior informed the sophomore that
their deal was off.
Can the sophomore enforce the agreement? Who are you trying to enforce the agreement against?
The Senior.
That’s who needs to have signed it.
(A) Yes, because the senior signed an agreement.
(B) Yes, because there was sufficient consideration for the agreement.
(C) No, because the sophomore did not sign the agreement.
(D) No, because the senior is not a merchant.
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Misrepresentation
- Misrepresentations are incorrect or fraudulent assertions of fact
during contract negotiations that cause reliance on the part of the
other party. The false statement must be intentional and “material.”
- Remedy: can prevent the enforcement of the contract or make the
contract voidable.
Impossibility
● Look for a natural disaster or illegality
You’re off the hook!
Objective
Impossibility
Subjective
Impossibility
You’re going down!
Impracticability (frustration of purpose)
- You can still technically perform the contract, it just doesn’t make
sense anymore
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Let’s try one . .
A fraternal organization wanted to host a festival in a small beach city, hoping to raise funds
for its activities by selling various crafts and food. The organization contracted with a caterer
to supply various snacks and desserts. The parties agreed that, before any deliveries, the
organization would make a deposit on the contract amount. However, four days before the
festival, terrorists attacked the small city, destroying several buildings. Government offices
and businesses were closed for three days. The organization now refuses to make a deposit to
the caterer because no one would want to hold a festival while everyone is still in shock from
the attack.
Which of the following is correct?
(A) The organization is liable, because the organization's duties under the contract can be
performed.
(B) The organization is liable, because the terrorist attack did not destroy the central purpose
of the contract.
(C) The contract is discharged, because of frustration of purpose.
(D) The contract is discharged, because of impossibility.
A fraternal organization wanted to host a festival in a small beach city, hoping to raise funds
for its activities by selling various crafts and food. The organization contracted with a caterer
to supply various snacks and desserts. The parties agreed that, before any deliveries, the
organization would make a deposit on the contract amount. However, four days before the
festival, terrorists attacked the small city, destroying several buildings. Government offices
and businesses were closed for three days. The organization now refuses to make a deposit to
the caterer because no one would want to hold a festival while everyone is still in shock from
the attack.
Which of the following is correct?
(A) The organization is liable, because the organization's duties under the contract can be
performed.
(B) The organization is liable, because the terrorist attack did not destroy the central purpose
of the contract.
(C) The contract is discharged, because of frustration of purpose.
(D) The contract is discharged, because of impossibility. Well, it’s not impossible . .
A fraternal organization wanted to host a festival in a small beach city, hoping to raise funds
for its activities by selling various crafts and food. The organization contracted with a caterer
to supply various snacks and desserts. The parties agreed that, before any deliveries, the
organization would make a deposit on the contract amount. However, four days before the
festival, terrorists attacked the small city, destroying several buildings. Government offices
and businesses were closed for three days. The organization now refuses to make a deposit to
the caterer because no one would want to hold a festival while everyone is still in shock from
the attack.
Which of the following is correct? Common sense says call it off . . .
(A) The organization is liable, because the organization's duties under the contract can be
performed.
(B) The organization is liable, because the terrorist attack did not destroy the central purpose
of the contract.
(C) The contract is discharged, because of frustration of purpose. Just pointless now . .
(D) The contract is discharged, because of impossibility.
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Contracts:
Remedies
Professor Ryan Williams
Contract Remedies
I. Expectation Damages: putting the aggrieved party in as good a
position as it would have expected to be in had both parties
performed the K.
II. Reliance Damages: putting the aggrieved party in as good a
position as it would have been, if it had never contracted with
the breaching party.
III. Restitution Damages: restoring to the aggrieved party any
benefit it conferred to the breaching party prior the breach; or,
put another way, forcing the breaching party to return any
unearned benefit it received from the aggrieved party.
Contract Remedies: Non-Monetary
IV.
Recission: essentially undo the contract.
V. Specific Performance: make the breaching party perform.
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I. Expectation Damages
- Giving the Plaintiff the benefit of the bargain, by putting them in
as good as position as they would have been had Defendant
performed as promised.
- Default remedy
- The difference between what P expected to receive from the D’s
promised performance and the value P actually received.
- For example, Painter fails to paint house for $1000 as promised.
No out-of-pocket loss by the owner of the house.
- BUT, if owner hires someone else to paint the house and the best
they can do is for $1500, the owner is entitled to the difference
between the contract price and the actual price.
I. Expectation Damages
- Major limitation: Mitigation
- A plaintiff cannot recover damages that it could have avoided,
after receiving notice of the defendant’s breach.
Let’s try one . .
An event planner went on a weekend trip to a small town where she visited
a crafts fair and saw some earrings made by a local jeweler which were on
sale for $85 a pair. The event planner thought that the earrings would make
a nice addition to the gift bags she was preparing for an upcoming event
and commissioned the jeweler to make 200 pairs of the earrings at a price
of $75 a pair. The jeweler made all 200 pairs and called the event planner to
confirm that she was about to deliver them. The event planner had
forgotten all about the earrings and told the jeweler not to bother delivering
them, because she had decided to "go in a different direction.”
So at this point, the jeweler has a duty to mitigate. She must try and
recoup some of the loss, by making a reasonable effort to sell the earrings,
at a reasonable price.
If they do that, and end up selling the 200 pairs for $50 a pair, that would be
$10,000. Now she was supposed to net $75 each, for a total $15,000, so her
expectation damages are . . . $5,000. The amount you expected to get,
minus what you actually received, after mitigating the loss.
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Here’s the wrinkle. . .
- What if instead the jeweler sold the 200 pairs for $5 a pair to her sister,
who planned to sell them at craft fairs in a different part of the state. The
jeweler then sued the event planner for breach of contract, demanding
$14,000 in damages, which was based on the $70 difference between
what she was promised for the earrings and what she sold them for,
multiplied by 200.
- Is she entitled to that?
- No. Did not make a reasonable effort to mitigate.
II. Reliance Damages
- Reimbursing Plaintiff for their out-of-pocket loss caused by the breach
- X contracted with Y to sell motorcycles, and then X spent $10,000 on a
storage facility to house all the motorcycles once they came in.
- But then Y breached, and refused to ship any motorcycles at all.
- X can seek reliance damages in the amount of $10,000.
- Which puts them back in the position they would have been in, before
the contract.
III. Restitution Damages
- Restoring to Plaintiff any benefit that they conferred on Defendant.
- Goal is to avoid unjust enrichment
- Parties usually resort to seeking restitution damages if expectation
damages are too hard to prove.
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IV. Recission
- Undoing the contract
- For example, in a mutual mistake situation, where both parties
are unclear as to one or more material terms of the contract, the
remedy is recission.
V. Specific Performance
- the performance of a contractual duty, in cases where monetary
damages would not be an adequate remedy.
- when the subject of the contract is unique
- i.e. sale of land (unique)
Let’s try a wrinkle . .
A buyer wants to buy a house that needs some work to the foundation. He enters into a
written contract for the sale of the house for $200,000. The sale is conditioned upon the
seller doing the foundation work within a month. Meanwhile, a second buyer learns of
the pending sale of the cottage and offers the seller $300,000 for the house with no
conditions. The seller agrees to sell the house to the second buyer and consequently
does not do the work on the foundation. On the date set for performance, the first
buyer refuses to close on the house purchase because the seller did not do the
foundation work. The seller then contracts to sell the house to the second buyer.
If the first buyer discovers the seller's act and files suit against the seller, which of the
following is most accurate?
(A) The first buyer should receive nothing, because he refused to purchase the house.
(B) The first buyer is entitled to an injunction preventing the sale of the house to the
second buyer.
(C) The first buyer is entitled to specific performance of the contract with an offset in
price for the failure to perform the foundation work.
(D) The first buyer should receive specific performance and treble damages since the
seller’s acts were fraudulent.
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Let’s try a wrinkle . .
A buyer wants to buy a house that needs some work to the foundation. He enters into a
written contract for the sale of the house for $200,000. The sale is conditioned upon the
seller doing the foundation work within a month. Meanwhile, a second buyer learns of
the pending sale of the cottage and offers the seller $300,000 for the house with no
conditions. The seller agrees to sell the house to the second buyer and consequently
does not do the work on the foundation. On the date set for performance, the first
buyer refuses to close on the house purchase because the seller did not do the
foundation work. The seller then contracts to sell the house to the second buyer.
If the first buyer discovers the seller's act and files suit against the seller, which of the
following is most accurate?
(A) The first buyer should receive nothing, because he refused to purchase the house.
(B) The first buyer is entitled to an injunction preventing the sale of the house to the
second buyer.
(C) The first buyer is entitled to specific performance of the contract with an offset in
price for the failure to perform the foundation work.
(D) The first buyer should receive specific performance and treble damages since the
seller’s acts were fraudulent.
Let’s try a wrinkle . .
A buyer wants to buy a house that needs some work to the foundation. He enters into a
written contract for the sale of the house for $200,000. The sale is conditioned upon the
seller doing the foundation work within a month. Meanwhile, a second buyer learns of
the pending sale of the cottage and offers the seller $300,000 for the house with no
conditions. The seller agrees to sell the house to the second buyer and consequently
does not do the work on the foundation. On the date set for performance, the first
buyer refuses to close on the house purchase because the seller did not do the
foundation work. The seller then contracts to sell the house to the second buyer.
If the first buyer discovers the seller's act and files suit against the seller, which of the
following is most accurate?
(A) The first buyer should receive nothing, because he refused to purchase the house.
(B) The first buyer is entitled to an injunction preventing the sale of the house to the
second buyer.
(C) The first buyer is entitled to specific performance of the contract with an offset in
price for the failure to perform the foundation work.
(D) The first buyer should receive specific performance and treble damages since the
seller’s acts were fraudulent.
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