Brian Blum Contracts Notes Outlines Chapter 1 A.

Legal Meaning of a Contract (a relationship between the parties, not the memorial) a. An agreement between two or more persons, written or oral. i. Must be voluntary and consensual ii. These days agreement is evaluated on an objective reasonable person standard and such is indicated from the conduct of the parties. iii. Does not have to be written to be enforceable, except as directed by certain statutes, i.e. Statute of Frauds. iv. A manifestation of mutual assent; a party is held liable for deliberate manifestations by words or conduct, made with reason to know they will create a reasonable impression of assent. b. An exchange relationship i. Something of considerable and legal value must be agreed to be exchanged. ii. Labor, services, property, prohibitions, etc. c. At least one promise exchanged i. Promise is an undertaking to perform or refrain from acting in a specified (specific) way at some future time. ii. A manifestation of intent by the promisor that justifies the promise in understanding that a commitment has ben made iii. An simple exchange, or barter does not create a contract unless there is some attached promise, warrantee or guarantee. Executed exchange. iv. A contract therefore creates an atleast 1 outstanding promise. d. Enforceable in/at law i. Contracts are private lawmaking, personalized statutes that govern a relationship. ii. It creates obligations in law and is cognizable in a court of law (contract) e. Limitations of Contracting i. Secured by Art I. Sect. 10 of Organic Constitution ii. No one can be forced to contract, common sense and Art 13(2) iii. Contracts are delimited by corresponding rights held by other persons, and by the states legitimate interest in appropriate regulation. iv. States interest would be to create fair regulations (playing field) so that the weaker party does not get run over by the more leveraged party. v. Pacta sunt servunda agreements must be kept, there is moral and legal obligation to keep agreements. f. The Security of Contracts i. Necessary for commerce in society and without enforcement people would not contract. B. Facets of the Law of Contracts and Source of its Rules, Processes, and Traditions a. Classical and Contemporary Contract Law i. Prior to 18th century contracts were not thought of as a systematic body of law but rather according to the nature of the contract.

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ii. Classical contract approach, developed in 18-19th centuries stressed strict application of the law to the case legal positivism. iii. Contemporary law takes into account social changes, public policy, doctrine etc. creating a less predictable system than classic law, but more adaptable to a changing climate. Re: changing corporate policies. The Common Law in its contexts i. The common law is the collective national laws of England/Briton whch were imported into the Union States/ colonies legal system. In this sense the common law is used in distinction to the Roman civil law. ii. Common law is also used to refer to judge made law, those laws made based on the decisions of the courts rather than legislation. Contracts is largely a common law subject, though legislation does at times extend to contracts. iii. Common law can also be used in the sense of a process or approach to legal analysis. That is the process by which the judge applies the law, whether its source by from common law or statue, to the case at hand. This is in contrast to the more rigid application that occurs in decision formulation in civil law. This is the patterns of thinking and modes of analysis of applying the law to the facts of the case. Common law v. Equity i. Equity, meaning fairness and justness, was a jurisdiction held in cases by the chancellor, delegated power by the king, to do justice in matters which no remedy was available through common law writs. ii. Matters entertained included injunctions and specific performance. iii. Common law system featured suits at (common law) and equity, but no trial by jury was necessary in equity cases (See 7th Amendment). State Law Governance over Contracts i. Common law of contract, as well as statutory law governing contracts, is state law. Federal contract law involves interstate commerce and contracts with federal bodies. 1. As a result there is strictly speaking no general law of contracts, but rather 50 states tradition code of the law of contracts, not including D.C. and territories. UCC Model Statute and State Law i. UCC supersedes general state common law with respect to the articles and types of contracts to which it relates, i.e. sales negotiable instruments, except if private contract specifies otherwise. ii. Each state has adopted model statute code UCC (ex. Louisiana) with its own minor adjustments. However each states courts interpret differently. iii. UCC Model statute official comments are not legislative history but are persuasive for the state courts. UCC Article 2 Sale of goods i. Goods - UCC $2.f 05(1)3 to include movable things other than money and various intangible rights ii. Sale - consist of the passing of title from the seller to the buyer for a price .

iii. If there is difference between common law and ucc regarding a sale of goods then the common law controls. If it is not a sale of goods then the common law controls. iv. Hybrid transactions occur when the exchange involves a sale of goods and provision of labor. 1. Predominant factor test is used by courts to determine which body of laws to apply, i.e. the sale or the labor. 2. Gravamen test applies the law to the point of controversy, if it is a labor issue- common law; if sales-UCC. a. Some courts feel this test is too complicated and defeats the purpose of the UCC, namely to simplify commercial law. 3. Predominant factor may eliminate the implied warranty protections inherent in UCC, and not common law, if the labor is determined to be the predominant factor. v. Common law and equity principles supplement UCC, 1-103, and where UCC is silent it is there the common law speaks or fills gap. vi. Though Art. 2 is only mandatory in contracts for sales of goods, it is persuasive in analogous situations. C. The Doctrine of Precedent and Contract Case Analysis a. Judges as makers of contract law i. Through doctrine of precedent, stare decisis, judges make binding decisions on cases containing substantially similar facts. ii. Precedent is only binding on the court that made it and courts of inferior rank in the same judicial hierarchy. iii. Generally when a federal court decides on a state matter it is acting as a part of the state judicial hierarchy, bound by state precedent. b. Court made law in general i. Is created spasmodically, in contrast to the legislative process that goes into statutory construction. ii. Is based on the case that happens to arise, and therefore the rules the court creates are very closely tied to the facts in the case. iii. Legal rule of case is contained in the judges Opinion. 1. The holding, ratio decidendi, contains the statement of rule and application to the case. Based on issue of case. 2. Obiter dictum is the portion, which gives additional info. And hypothetical information. (said in passing) collateral info. Related and pertaining to the issues in the case. c. Deductive Reasoning in Court made law i. The General Rule of the case is the major premise ii. The particular facts to which it is applied is the minor premise iii. If there is a necessary connection between the two premises then the conclusion must be true, logically speaking. iv. The facts of the decided case through inductive reasoning become the major premise for future cases. v. When new rule exists, courts make rulings based on: 1. Public policy goals

2. Ethics and fairness 3. Institutional efficiency D. The Objective Test and Common Law Offer and Acceptance a. Contracts are based on mutual assent/consent i. Assent policy- protects party which did not assent from being bound ii. Policy of protecting reliance protects against overreliance on subjective assent. iii. Classical thought employed and objective standard for assent, which was based on reasonably interpreted actions of the party. Issues of state of mind were not permitted or factored into determination. Strict conduct of parties. iv. In absence of compelling contrary indications assent is legally sufficient if each party, by the deliberate use of WORDS or CONDUCT, manifested agreement to be contractually bound. b. Modern Objective Test of Assent, Internal and External i. Manifestations of intent are not interpreted in light of what the utterer actually understood (offeror) ii. Manifestations of intent are viewed from the standpoint of a reasonable person in the position of the party to who the manifestation was made(the acceptor). iii. This tests focuses on what the words of actions of either party should have been understood, if interpreted reasonably, in the context of the transaction, by a person with the knowledge and attributes of the party to whom they were directed. iv. Objective evidence includes: signatures on paper, words, certain conduct. 1. Subjective testimony is relevant when it pertains to unfairness and fraud, i.e. duress, misrepresentation. However, courts maintain a duty to read BEFORE SIGNING! c. Offer and Acceptance i. Important to note that a contract may be formed before and without a formal memorialization of agreement. It may be present in a series of emails or verbal, etc. 1. In colloquial speech, people often talk of signing a contract. Strictly speaking, this is inaccurate terminology. The contract is the legal relationship between the parties, and the document signed is the RECORD OR MEMORIAL of that contract. 2. Certain types of contracts, under statute of frauds, must be recorded and signed in writing to be enforceable. 3. Offer and acceptance is not always relevant to a dispute, as the issue of contract formation may not be in contention. However it is relevant in cases where a. Parties dispute whether their communication resulted in the formation of a contract. b. If there is a dispute over which communication constituted the offer and which the acceptance

c. It is relevant to determine which states law governs the contract. d. Offer and Acceptance continued i. Offeror- communicates offer to some person, offeree, to enter into a contract on some specified terms. ii. If not accepted then no contract arises. iii. Counteroffer occurs when offeree proposes changes in original offer 1. This has the legal effect of terminating the original offer and reversing the process and roles. iv. Elements of an Offer 1. Offer must be communicated to the addressed person; it has no legal effect until it becomes known to the offeree. 2. Must indicate a desire to contract; specifically it must specify the performances to be exchanges (consideration) and terms that govern the relationship. The offeror is the master of the offer. 3. Must be directed at some person of group of persons. 4. Must invite acceptance, if stated specifically, then it must be followed. 5. Must create the reasonable understanding that upon acceptance, a contract will arise without any further approval being required from the offeror. Committal upon acceptance vs. mere proposal a. I am selling my home for 2 mil, if interested send acceptance by 2/2/20date. b. I am interested in selling home for 2 mil, if you are interested make me an offer. 6. Other Controlling Factors a. Previous relationships and dealings of parties. b. Common practices or trade usages. v. Termination of offer 1. Failure to accept on time (depends) 2. Counteroffer, results in a new offer 3. Death or incapacity of offeror, before acceptance. vi. Revocation 1. An offeror make revoke an offer at any time, even if the original specified a time period. 2. Revocation is effective only when it is communicated to the offeree. a. This defined as notice from offeror or communication from a reliable source of the withdrawal of offer. b. This involves receipt by offeree, his authorized representative, or deposit in an authorized place, whether read or not. vii. Responses to an Offer 1. Mirror-image rule largely governs conformity of an acceptance, and therefore if strictly applied, rejects non-conforming responses. 2. Counteroffers reject original offer and reverse power of acceptance. a. This should be distinguished from terms implicit in the offer, i.e. a clean title in a sale of property, or other things warranted by law, custom, etc.

3. Outright rejections with explanation do not give power of acceptance. 4. Requests for information or suggestions for changes are made with the intent of reserving the decision to accept until the offeror reacts to the request. 5. Mode of Acceptance is seen as the procedural side of the agreement, in contrast to the substantive agreement. a. Mailbox rule (legal fiction) states that acceptance is effective once properly deposited in the mail, or fax, etc. This can be specified otherwise. b. Counteroffers and revocations are only effective upon receipt. viii. Silence or Inaction as Acceptance 1. An offeror cannot impose a duty on the offeree to take some affirmative step to reject the offer, making failure to act an acceptance. 2. Situations where silence binds on the offeree in absence of intent to accept: a. Silence is acceptance if the offeror proffers property or services with the offer, and the offeree having reasonable opportunity to return or refuse them, exercises ownership rights over the property or accepts the benefit of the service. b. Silence may operate as acceptance if prior dealings between the parties or other circumstances make it reasonable for the offeror to expect the offeree to give notice of rejection. ix. Unilateral and Bilateral Contracts 1. Bilateral contracts come into existence after acceptance and both parties obligations to perform are outstanding 2. Unilateral contracts involve the simultaneous acceptance on performance on the party of 1 party, leaving only 1 side with an outstanding promise. x. Offers that do not specify between performance upon acceptance 1. If the offer does not specify, the offeree may accept by promise or performance. 2. In such cases where there is no specification on promise or performance, if one begins to perform, tender in the case it is a continuous job, then the law views it as an implied promise to perform, therefore acceptance. 3. In cases where performance is the exclusive mode of acceptance, then the beginning of a tender of performance creates a nonrevocable option in favor of the offeree, but in order to fully accept performance must be completed as specified in the offer. Applicable in unilateral contracts. 4. In cases, where the offeror has no way to know performance has been tendered, the offeree has a duty to notify the offeror of acceptance in a reasonable amount of time, or else the offeror will be discharged, by latches or an inexcusable delay in some action.

5. Reverse unilateral contracts occur when offeror performs instantly upon acceptance of offeree, and offerees performance is left due. E. Options and Firm Offers a. An option is a promise to keep an offer open for a stated period of time i. Binds offeror as soon as it is communicated to offeree ii. Can not revoke until end of specified time iii. Under common law an option does not bind the offeror unless he is given some valuable consideration in exchange. iv. To be valid the option must have its own separate consideration. v. The above does not apply if the option is contained within the consideration of the contract. vi. Nominal considerations may be upheld by courts in relatively short term options. vii. Sham considerations are given to give legal validity to an offer, the courts may or may not approve of this if raised as an issue in court. 1. Estoppel may be used by the courts to sustain this fiction of consideration. Promissory estoppel a. Promissory estoppel also operates when the offeree relies detrimentally upon the original offer, despite no consideration. b. This is very case by case dependent, takes into account specifics of deal, customs, previous dealings, etc. 2. Courts may also construe the sham consideration as a promise to furnish the consideration at a later time. viii. Valid options can not be revoked by offerees rejection, and my countermand any rejection made up until the end of the option, the waiver of rights is unenforceable by the offeror because no new consideration has been given. 1. However if offeror relies detrimentally upon offerees rejection then the offeree may not reverse. ix. Irrevocable offers may be made merchants under UCC 2.205 if: 1. If its made in writing, this includes recording by means other than writing. 2. There is assurance to the offeree that it will be held open 3. If the assurance is contained on a form supplied by the offer, the offeror must sign the assurance separately; to avoid hidden assurances. 4. This conditions apply for time stated or reasonable time 3moons. F. Offer & Acceptance under UCC and Battle of the Forms a. UCC 1-103, unless displaced by the particular provisions of the Code, the general principles of common law apply to the transaction governed by the Code. i. Ergo, since UCC Art. 2 says little about offer and acceptance, that concept is largely governed by common law rules of offer and acceptance. ii. UCC 2-204 states the courts should focus on the existence of agreement between the parties, whether shown words or conduct, and if agreement is apparent, the court should not be concerned with technicalities, but should do what it can to uphold and enforce the contract. UCC 2-206 generalizes acceptance by any reasonable means unless the mode is restricted.

iii. This sounds like, under the Code, the courts may clearly favor the presumption of general contracts or adhesion contracts and are instructed to enforce said contracts. iv. The mailbox rules is abolished by 2.207, but technically only applies to sale of goods. b. Battle of Forms, Last Shot Rule i. If two standard boilerplate forms are used and contain contradictory pieces, the second form would be seen as a counteroffer, via failure to meet mirror image standard and if accepted under those terms, would constitute acceptance under the last shot rule, literally last on top wins. 1. These would be applied in such that any conflicting contracts would and could create a back and forth until one party accepts or rejects. 2. Note at common law neither party can unilaterally modify the contract by simply sending a writing with new terms to the other. ii. These doctrines are rejected in UCC Sect. 2 as being rigid and non suitable for todays environment. 1. UCC 2.2O7 provides situations in which the common law rule of no unilateral alteration of terms may occur. c. Offer and Acceptance Under Existing UCC 2.207 i. A definite and seasonable (upon some accountable occasion) expression of acceptance 1. Operates as acceptance a. Even though it states terms additional to or different from those offered (acceptance with different or new terms) b. UNLESS acceptance is expressly made conditional on assent to the different terms (no acceptance counteroffer) ii. What qualifies as an offer is determines by general common law principles of offer/acceptance. 1. 2.207 merely seeks to resolve the issue of the conflict terms and mirror image rule. 2. If the offeree furnishes a counteroffer with new or additional terms, the terms will only be added if it is clear that the offeror was aware of said terms and it can be shown that the offeror acted with unambiguous acceptance. iii. 2.207 (2) 1. The additional terms are construed as proposals for addition to the contracts. Between merchants (both must be) such terms become apart of the contract UNLESS a. The offer expressly limits acceptance i. This is contemplated as if a contract exists. b. They materially alter it; or i. Provides significant change in bargained element, i.e. surprise, hardship c. Notification of objection to them has already been given or is given within a reasonable time after notice is received.