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Contracts Outline: Common Law Contracts:

I.

Contract Formation:
A) Present Commitment to form a contract: The requirement that parties express a present commitment is a rule. - Each party must communicate a present commitment to form a contract - R.2d. 18 Manifestation of Mutual Assent: manifestation of mutual assent requires that each party either make a promise or begin or render a performance - 17 Requirement of a bargain: (when there is no bargain a contract may be formed under special rules 82-94) The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration. - S19 Conduct as Manifestation of Assent: may be made wholly or partly by written or spoken words, or by acts or failure to act; the conduct of a party is not effective as a manifestation unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents; the conduct of a party may manifest assent even though he does not in fact assent. - 22 Mode of Assent: the manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties; a manifestation of assent may be made even though neither offer nor acceptance can be identified and the moment of formation cannot be determined.

B) OfferAn offer must communicate a present commitment to contract and must include sufficiently certain terms R.2d 24 Offer Defined: an offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it R.2d 29 To Whom an Offer is Addressed: The manifestation intention of the offeror determines the person or persons in whom is created a power of acceptance; an offer may create a power of acceptance in a specified person or in one or more specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders specified performance R.2d 30 Form of Acceptance Invited: an offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance; unless otherwise indicated by the language or circumstances an offer invites acceptance in an manner and by any medium reasonable in the circumstances

R.2d 32 In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. - Lucy v Zehmer: an agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words or acts, can be seen by a reasonable person, to manifest an intention to agree, it does not matter what he may have really meant but did not express. A person cannot say that he was joking when his conduct and words would have a reasonable person believe he intended a real agreement. C) Certainty of Terms: - An expression of commitment may not be enough to be an offer, an acceptance or an expression of assent. - R.2d 33 Certainty: Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. These terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. - 34 Certainty and Choice of Terms: Effect of Performance or Relaince The terms of a contract may be reasonably certain even thou it empowers one or both parties to make a selection of terms in the course of performance. Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. - Essential Terms: quantity, time for performance, parties to a contract, price, place for performance, and subject matter (QTPPPS) D) Special Offer Rules: - General Rules: a legal principle that governs most situations, but, under particular circumstances, is not determinative. - Advertisements: as a general rule advertisements, circulars, and price quotes are not offers. They are invitations to an offer. Courts tend to decide this because there is no specific offeree or a specific quantity. Advertisements lack a certainty of terms - If advertisements were offers an advertiser would be liable for every person who comes in to accept and would be required to have an unlimited supply of the item advertised. - Lefkowitz v. Great Minneapolis Surplus Store: in this case the court ruled an offer existed because the offer was clear, definite and explicit the Ps acceptance created a contract. The offer contained a certainty of terms. E) Letters of Intent: parties often choose to document their progress toward a contract in a Letter of Intent. Sometimes this letter is used to contractually bind the parties and they regard a final written agreement as a formality. It makes it

difficult to determine whether the parties intended to document their progress or to create a binding contractual obligation. - R.2d 26 Preliminary Negotiations: A manifestation of a willingness to enter into a bargain is not an offer if the person whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made further manifestation of assent. - R.2d 27 Existence of a Contract where written memorial is contemplated: Mainfestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. - These provide that letters of intent may or may not be binding depending on whether the parties intend a letter to be binding or intend that neither party will be bound until they negotiate and execute final documentation. - For a contract to be formed there must be a meeting of the minds F) Request for Bids: - Courts generally hold that when a general contractor seeks bids from subcontractors it is an invitation to an offer. Subcontractors who submit bids are viewed as having made an offer. General Contractors accept the subcontractor bid most favorable to their overall bid. An overall bid to a client is an offer that can be accepted. G) Acceptance: - R.2d 50 Acceptance of Offer Defined: Acceptance by Performance; Acceptance by Promise: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or requested by the offer. Acceptance by Performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. Acceptance by a Promise requires that the offeree complete every act essential to the making of the promise. - R.2d 52 Who may accept an Offer: an offer can be accepted only by a person whom it invites to furnish the consideration. - R.2d 35 The Offerees Power of Acceptance: An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated by a certain means. - R.2d 30 Form of Acceptance Invited: an offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance; unless otherwise indicated by the language or circumstances an offer invites acceptance in an manner and by any medium reasonable in the circumstances H) Offerors Control over the Manner of Acceptance: - Offeror is the master of the offer and has the right to insist how an acceptance is made

On offeror can require or suggest how an offer is accepted. If the offer does insist on a particular manner of acceptance, an offeree can only accept by complying with the insisted upon manner of acceptance. If and offeror only suggests a preferred manor of acceptance, acceptance by an reasonable means will suffice. 53 Acceptance by Performance; Manifestation of Intention Not to Accept: An offer can be accepted by rendering of a performance only if the offer invites such performance. The rendering of a performance does not constitute an acceptance if within a reasonable time the offeree exercises reasonable diligence to notify the offeror of non-acceptance. Where an offer of a promise invites acceptance by performance and does not invite a promissory acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror performs the promise the offeree manifests an intention not to accept. 51 Effect of Part Performance Without Knowledge of Offer: Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the other may accept by completing the requested performance. 54 Acceptance by Performance; Necessity of Notification to Offeror: Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharge unless (a) the offeree exercises reasonable diligence to notify the offeror of acceptance or (b) the offeror learns of the performance within a reasonable time or (c) the offer indicates that notification of acceptance is not required. 55 Acceptance of Non-promissory Offers: Acceptance by promise may create a contract in which the offerors performance is completed when the offerees promise is made 56 Acceptance by Promise; Necessity of Notification to Offeror: where the offer manifests a contrary intention it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. 58 Necessity of Acceptance Complying With Terms of Offer: An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered. 60 Acceptance of Offer Which States Place, Time or Manner of Acceptance: If an offer prescribes the place, time or manner of acceptance its terms in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded. 62 Effective of Performance by Offeree Where Offer Invites Either Performance or Promise: Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or

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beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. Such an acceptance operates as a promise to render complete performance. - 65 Reasonableness of Medium of Acceptance: Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. - Issues to look at when analyzing if a valid acceptance exists: (1) does the offer require, suggest or not address a particular manner of acceptance? If the manner is not addressed at all it will be obvious. To decide whether a manner of acceptance is required or suggest look at the specific language of the offer - (2) If an offer does require a particular manner of acceptance, has the oferee complied with the required manner? If so and an oferee otherwise accepts an offer the parties have satisfied the mutual assent. If not the parties did not form a contract. - (3) If an offeror suggested a particular manner of acceptance, and an offeree accepts using a different manner, has the offeree accepted? If the offeree adopts a reasonable manner and otherwise accepts, the parties have satisfied the mutual assent requirement. If not, the parties did not form a contract. Unilateral Contract: a contract in which the offeror requires an acceptance to be in the form of performing the very act the offeror is seeking when making the offer. It refers to the fact that only one party, the offeror, is making a promise. It can only be accepted by doing the act that needs performing and completing that act. Bilateral Contract: a contract in which requires an acceptance to be in the form of a promise. It refers to the fact that both parties are making promises. Can silence constitute acceptance? R.2d 69 Acceptance by Silence or exercise of dominion: where an offeree fails to reply to an offer his silence and inaction operate as an acceptance in the following cases only: (a) where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. (b) where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. - (2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. Termination of the Power of Acceptance: - 36 Methods of Termination of the Power of Acceptance - (1) An offerees power of acceptance may be terminated by: - (a) rejection or counter-offer by the offeree, or - (b) lapse of time, or - (c) revocation by the offeror, or

(d) death or incapacity of the offeror or offeree. (2) In addition, an offerees power of acceptance is terminated by the nonoccurance of any condition of acceptance under the terms of the offer Death and Incapacity: An offerees power to accept an offer terminates upon the death or incapacity of the offeror. 48 Death or Incapacity of Offeror or Offeree: An offerees power of acceptance is terminated power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract Revocation: Irrevocable offers cannot be revoked. When analyzing a revocation issue first consider whether the offer is irrevocable. Irrevocable Offers in Bilateral Contracts: Firm offer under UCC is irrevocable. The second way is an option contract. An option contract is a toll used by undecided buyers and sellers to meet their respective needs. Option contracts allow buyers to buy time. The buyer pays the seller an agreed upon sum to ensure that for a specified time the seller will not make the offer to someone else. In an option contract a seller and a buyer exchange time for money. To form an option contract there must be mutual assent and consideration. The only difference is the consideration is more lenient. While Courts will generally conclude there is no consideration (calling the consideration nominal) if the amount stated in a contract is $1 or less, courts accept $1 as consideration for an option. Irrevocable Offers in Unilateral Contracts: R.2d 24 Option Contract: An option contract is a promise which meets the requirements for the formation of a contract and limits the promisors power to revoke an offer. 45 Option Contract Created by Part Performance or Tender: Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. The offerors duty of performance under any option contract so created is conditional on completion or tender of the incited performance in accordance with the terms of the offer. 37 Termination of Power of Acceptance Under Option Contract: the power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. 87 Option Contract: (1) an offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and purposes an exchange on fair terms with a reasonable time, or (b) is made irrevocable by statute (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. Two Ways an Offer May Revoke:

42 Revocation by Communication From Offeror received by offeree: an offerees power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the propsed contract 43 Indirect Communication of Revocation: an offerees power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. 44 Effect of deposit on revocability of offer: an offerors power of revocation is not limited by the deposit of money or other property to be forfeited in the event of revocation, but the deposit may be forfiteited to the extent that it is not a penalty. 46 Revocation of General Offer: Where an offer is made by advertisement in a newspaper or other general notification to the public or a number of persons who are unknown to the offeror, the offerees power of acceptance is terminated when a notice of termination is given publicly by advertisement or other general notification equal to that given to the offer an no better means of notification is reasonably available. Lapse and Rejection: two methods of terminating an offer. 38 Rejection: (1) an offerees power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under future advisement 41 Lapse of Time: (1) an offerees power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. (3) Unless otherwise indicated by the language or the circumstances, and subject to the rule in 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day in which the offer is received. 49 Effect of Delay in Communication of Offer: If communication of an offer to the offeree is delayed, the period within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the offeror, but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been delay, a contract can be created by acceptance within the period which would have been permissible if the offer had been dispatched at the time that its arrival seems to indicate. Counter-Offers: an offeree is not willing to be bound by the terms stated in an offerors offer, but wishes to continue her discussions with the offeror. In this situation an offeree may propose an alternative deal, a counter-offer. When an offeree chooses to make a counter-offer, that choice seems to imply a rejection of the original offer.

39 Count-offers: (1) a counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. (2) An offerees power of acceptance is terminated by the making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree. - Mailbox Rule: 63 Time when acceptance takes effect: Unless the offer provides otherwise: an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession without regard to whether it ever reaches the offeror; but an acceptance under an option contract is not operative until received by the offeror. - 66 Acceptance Must be Properly Dispatched: An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages. - 40 Time when rejection or counter-offer terminates the power of acceptance: rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before the rejection or counter offer is received. M) Mutual Assent under UCC Article 2: - 1-103:unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and law relative to capacity to contract, principle and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions. - 2-204: Formation in General: (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. - 2-205: Firm Offers: an offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months but any such term assurance on a form supplied by the offeree must be seperatly signed by the offeror.(1-204 says a reasonable time depends on the nature, purpose, and circumstances.) - 2-206 Offer and Acceptance in Formation of a Contract: (1) Unless otherwise unambiguously indicated by the language or circumstances: (a) an

offer to make a contract shall be construed as inviting acceptance in any manner and by an medium reasonable in the circumstances; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. 2-207 Additional Terms to Acceptance or Confirmation: (1) a definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract to sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms in which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this act.

N) Consideration: - The general rule of consideration is a bargain for exchange. There is a basic rule for consideration: Despite the fact parties have bargained for an exchange, courts will not find consideration and will not enforce a promise, such as (1) a promise for actions or forbearances rendered in the past (past consideration) (2) a promise based solely on moral grounds (moral consideration) (3) a promise for a settlement or release (forbearance) of an invalid claim without an honest or reasonable belief that the claim has a colorable basis. 71 Requirement of Exchange: Types of Exchange: (1) to constitute consideration a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) the performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

- 72 Exchange of Promise for Performance: Except as stated in 73 and 74 any performance which is bargained for is consideration. (73 and 74 performance of a legal duty and settlement of claims) 75 Exchange of Promise for Promise: Ecept as stated in 76,77 a promise which is bargained for is consideration if, but only if, the promised performance would be consideration. 76 Conditional Promise: (1) A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur. (2) A promise conditional on a performance by the promisor is a promise of alternative performance within S77 unless occurance of the condition is also promised 81 Consideration as motive or inducing cause (1) the fact that what is bargained for does not of itself induce the making of the promise does not prevent it from being consideration for the promise. (2) the fact that part of what is bargained for would not have been consideration if that part alone had been bargained for does not prevent the whole from being consideration. 85 Promise to perform a voidable duty: Except as stated in 93 a promise to perform all or part of an antecedent contract of the promisor, previously voidable by him, but not avoided prior to the making of a promise is binding. 86 Promise for Benefit Received: (1) a promise made in recognition of a benefit previously received by the promisor from the promise is binding to the extent necessary to prevent injustice. (2) a promise is not binding under subsection (1) (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or (b) to the extent that its value is disproportionate to the benefit. Past and Moral Consideration: Settlement of Claims: In a settlement contract a party against whom a claim is asserted agrees to resolve that claim by paying the other party money. Settlement contracts are commonly made and enforced. Courts tend to do this because it prevents anymore overcrowding in the courts and if it were easy to undo settlements parties would be less likely to settle. Because of these conflicting policies many courts adopt a compromise. Under the position, a settlements of a claims which later turns out to be invalid is enforced if (1) the settling plaintiff had a genuine belief the claim was valid at the time of the settlement, and (2) the claim was, at worst, doubtful (as opposed to obviously invalid) from the perspective of a reasonable person. R.2d says that the courts should enforce a settlement if either the plaintiff had a genuine belief or if the claim was doubtful. 74 Settlement of Claims: (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be vaild. (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is

bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists. Pre-Existing Duty Rule: a promise to do what one already is legally obligated to do is not good consideration. Frequently arises when two parties have made one contract and then make a second. The question then becomes whether there is consideration for the second contract so that the second contract is enforceable. Courts sometimes call this economic duress. Under UCC 2-209(1)an agreement modifying a contract within this article needs no consideration to be binding. Illusory promises- really is not a promise at all. In an illusory promise the speaker has not bound themselves to any obligation. Illusory Promise is one basis in which courts choose not to enforce contracts. Any party to a contract can choose to breach the contract and suffer the consequences of doing so. A breach of contract occurs when a party refuses to perform the contract or a partys promised performance is defective in some way. The consequences that a breaching party faces usually involve paying a sum of money as damages to the non-breaching party. Often in breach of contract actions, a party will try to avoid liability by arguing that for some specific reason, there was no performance due. What makes a promise illusory: (1) a promise is illusory if it does not restrict the promisors future right of action (2) a promise is illusory if it gives the promisor unfettered discretion to perform or not perform the promise or (3) a promise is illusory if it does not restrict the promisors autonomy. Two other concepts the courts look at are (1) good faith and (2) reasonableness or reasonable efforts. 77 Illusory and Alternative Promises: a promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless (1) each of the alternative performances would have been consideration if it alone had been bargained for or (2) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

O) Promissory Estoppel - The fundamental goal of promissory estoppel is to protect a party if that party
legitimately relies on another parties promise, even though the technical requisites for contract formation have not been met. Can be thought of as reliance theory Reflects two departures (1) a departure from the traditional contract formation to an alternative doctrine by which courts may enforce promises and (2) a departure within contract law from the relatively formal approach of early contract law to more modern approaches advocated for by lawyers, law professors, and judges based on different policy rationales. Courts use Promissory Estoppel to enforce otherwise unenforceable promises in a variety of contexts, including the use of promissory estoppel as: (1) a

substitute for consideration (2) a substitute for a required writing (3) a mechanism for making certain offers irrevocable and (4) a mechanism for policing unfair bargaining behavior. Promissory Estoppel Elements: (1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise? (2) Did the promise induce such action or forbearance? (3) Can injustice be avoided only by enforcement of the promise? R.2d 90 Promise Reasonably Inducing Action or Forbearance: (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promise or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by the enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) a charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance Promissory Estoppel as a substitute for consideration: Promissory Estoppel as a substitute for a required writing: Courts will not enforce certain types of contracts unless they are in writing and signed. Statutes which require signed writings are called statutes of fraud Promissory estoppel provides a mechanism to enforce promises that do not comply with signed requirements. Promissory Estoppel as a Mechanism for Making Certain Offers Irrevocable: Promissory Estoppel as a Mechanism for Policing Unfair Bargaining Behavior: Hoffman v. Red Owl Stores, Inc: promissory estoppel is applied to enforce a statement that is not even an offer.

P) Contract Defenses: - Contract defenses are how parties get out of contracts. - Contracts facilitate the movement of goods, money, services, and other forms
of wealth among members of our society. They also, however, limit contracting parties freedom of action. In most cases, the choice to bind oneself by contract is voluntarily and knowingly made. Therefore, we as a society (and courts) do not object tp this restriction of freedom. In some cases it does not seem fair to restrict parties freedom of contract. Enforcing contracts promotes some important public policy rationales such as predictability and freedom of contracts. This sometimes contradicts with fairness. Deception: the first deception defense is Misrepresentation 159 Misrepresentation Defined: A misrepresentation is an assertion that is not in accord with the facts. 160 When action is equivalent to an assertion: action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

- 160-172

- Misrepresentation has 5 elements:


1) A false statement of fact, intention, or opinion 2) Addressing a fact, intention or opinion material to the contract, 3) Made with the requisite state of mind 4) Justifiably and actually relied on by the other party, and 5) Caused damage to the other party 1. Materiality: A fact is material if a reasonable person in the same circumstance would regard the fact as important in deciding whether to make a contract. Reasonable normally means an objective standard. 2. False statements of fact, intentions, and opinions: False means untrue, inaccurate, or erroneous. A fact is something that exists or occurs. An intention is a determination to act in a certain way in the future. An opinion is an expression of a persons belief or viewpoint, but not a matter of positive knowledge. All misrepresentations of fact and intention are actionable. Only certain types of opinion, however, are actionable. Specifically, only opinions that imply specific underlying facts are actionable. 3. The Requisite State Of Mind: refers to the knowledge of a party making a misrepresentation at the time the party makes the misrepresentation. There is no single state of knowledge required to assert the defense of misrepresentation. A party can avoid liabiltity under a contract by showing one of the three states of mind. Specifically, a party claiming misrepresentation can show that the speaker either: A) Knew the representation was not true (an intentional misrepresentation or fraud) B) Unreasonably believed the representation to be true (a negligent misrepresentation) or C) Reasonably believed the representation to be true (an innocent misrepresentation.) The distinction between these representations is important. First, for intentional misrepresentations, courts do not require any showing of materiality. Second, only victims of intentional misrepresentation are entitled to punitive damages. Third, only victims of intentional or negligent misrepresentation are entitled to any damages at all. For innocent misrepresentations a victim is not entitled to any money damages at all, he can only use the defense of misrepresentation as a way to avoid his contractual obligations by rescinding the contract made. An important policy rational in contract law is efficiency. It is efficient to place losses on the parties who are in the best position to avoid the problems causing losses. 4) Justifiable and Actual Reliance: A) Justifiable: a parties reliance is justifiable if it is not completely irrational, preposterous, or absurd. If a party has any basis for believing another partys representation, even if a reasonable person would not have done so, courts deem reliance justifiable.

Actual: a partys reliance is actual if the party acted because of a representation. A person actually relies on a representation if the representation caused her to make a contract. Damages: mean some type of loss, harm, or injury. Courts require some type of damages to be shown before a party is compensated with a money judgement in a legal action. The second defense is Mistake Mistake: there are 2 types of mistake mutual mistake and unilateral mistake Mutual Mistake: applies to situations where parties make contracts in light of certain, crucial assumptions about particular qualities of what they are buying and selling and those assumptions prove untrue. Mutual Mistake has 3 elements: 1) A mistake by both parties about the facts surrounding a transaction at the time a contract is formed; 2) Concerning a basic assumption upon which the contract was made; and 3) which has a material effect on the parties contractual exchange. Courts often consider whether a party claiming a mistake assumed the risk of that mistake in addition to applying the three elements of mutual mistake. Accordingly, assumption of a risk could be viewed as an additional element of mutual mistake. It is better understood, however, as a defense to the defense of mistake. Assumption of the risk is frequently an issue in mutual mistake cases. There are 3 situations in which a party may be found to have assumed a risk: 1) A contract allocates a risk to one party; 2) One party knows she has limited knowledge, but nonetheless treats that limited knowledge as sufficient; or 3) A court believes it is just to allocate a risk to one party. How defined by Courts A fact that a reasonable Person would consider Important in evaluating The transaction? A fact that goes to the Essecnce of the contract Focus of analysis Is this a fact a prudent person would want to know?

Element of What Claim Material Fact: Misrepresentation

Basic Fact

Mistake

Is this a fact that is central to the whole Deal?

Unilateral Mistake: has 4 elements 1) A mistake by both parties about the facts surrounding a transaction at the time a contract is formed;

2) Concerning a basic assumption upon which the contract was made; and 3) which has a material effect on the parties contractual exchange. 4) Either (a) the non-mistaken party knew of, should have known of, or caused the mistakel or (b) the mistake makes the contract a grossly unfair (unconscionable) bargain. Duress: has 2 elements: 1) One party must commit a wrongful act and; 2) The wrongful act must preclude the other party from exercising his free will There are 2 types of duress 1) Traditional 2) Economic Traditional Duress: one party uses violence or the threat of violence to preclude the other party from exercising his free will. Traditional duress may also take the form of false imprisonment or a threat of false imprisonment to force someone to enter a contract. Economic Duress: includes situations where one party uses economic threats to overcome another partys will. The defense of economic duress frequently arises as an alternative to an argument that a contract has violated the preexisting duty rule. Economic duress claims raise tricky issues such as whether a particular threat to breach a contract is in bad faith or an appropriate demand for extra compensation for extra work. Economic Duress must show that a partys free will has been precluded. Look for a completely unjustified threat and a party who cannot afford to wait to let the legal system address the harm caused by the threatened harm. Illegality:R.2d contracts against public policy: a contract is unenforceable on the grounds of public policy if a statute says so or if a courts general interest in enforcing the contract is outweighed by public policy. The result for finding a contract illegal or against public policy is that the contract is void. There are 4 recurring illegality problems: 1) Contracts prohibited by statute 2) Contracts in violation of licensing statutes 3) Covenants not to compete 4) Tangential Illegality Contracts Prohibited by Statute: a contract is against public policy if either the contract is expressly prohibited by statute or if a partys performance would violate a statute. Contracts in Violation of Licensing Statutes: a license is a right granted to do something which cannot legally be done without such permission. Governmental authorities grant licenses to carry on business or to practice occupations. A licensing requirement is created for the purpose of protecting public policy a contract made without obtaining the required license is against public policy.

Covenants Not to Compete: is a promise by one party not to work in a competing business or to open up a competing business. Courts consider such promises troubling. In the context of a covenant not to compete by the sale of a business courts are more sympathetic. However in employment covenants not to compete courts are less likely to enforce. Incapacity: There are 3 types of Incapacity: 1) infant or under guardianship 2) mentally ill or defective 3) intoxicated

Unconscionability: is a mechanism that allows courts to police


extraordinarily one-sided contracts. If a court determines that a contractual term is so unfair under the circumstances as to be outrageous, the court may refuse to enforce the entire contract, enforce the contract without the unconscionable clause, or limit the application of the unconscionable clause as in a way that avoids an unconscionable result. 2-208 Unconscionable Contract or Term: If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. Statute of Frauds: has 3 potential issues: 1) Is the contract subject to a statute of frauds? 2) Does the contract comply with the writing requirement of the applicable statute of frauds? 3) Is the contract enforceable notwithstanding its failure to comply with the writing requirement of an applicable statute of frauds? Statute of Frauds apply to the following types of contracts: 1) Land sale contracts: a contract to buy, transfer, or pay for any interest in land subject to a statute of frauds. Interest includes any right, power, privilege, or immunity with respect to land. Land sale contracts are usually in writing. 2) Suretyship contracts: A surety is a person who promises to pay or perform on behalf of another party to a contract. The statute of frauds applies if the person who is owed money or some performance knows or has reason to know of the suretyship relation or if the suretys promise is conditioned on a default by the other party to a contract. The statute of frauds does not apply if the promisor owed a duty to perform to either of the other parties to the contract. It also does not apply if the promisors reason for making the promise is mainly to serve his own economic advantage rather than to benefit the party to the contract. 3) Contracts not to be performed within one year: If a promise in a contract cannot possibly be performed within one year from the day on which the contract was made, the contract must comply with the statute of frauds. This provision is liberally applied so that, if it is possible that performance can be completed within one year the contract does not need to comply with the statute of frauds 4) Contracts for the sale of goods for $500 or more 5) Contracts made in consideration of marriage 6) Contracts by executors to answer for a duty owed by their decedents Does a contract comply with the writing requirement of the applicable statute of frauds? A contract complies with the common law statute of frauds if: 1) The contract is evidenced by any writing that: a. identifies the subject matter of the contract and b. is sufficient to indicate a contract has been made and

c. includes essential terms and 2) Is signed by the party against whom enforcement is sought. Courts enforce conracts if the party seeking enforcement can make out the elements of promissory estoppel

O) Contract Damages:
- a contract breach can take one of two forms: - breach by non-performance - breach by defective performance - Damages: the core goal of in awarding damages for a breach of contract is to award a plantiff a sum of money sufficient to place him in the same economic situation he would be in if the breaching party had fully and perfectly performed. This goal reflects societys policy decision that it is good to ensure that parties receive the benefit of the bargain they make. Remember the 4 Ps - 1) Put the - 2) Plaintiff in the - 3) Performance - 4) Position - Damages are a sum of money given as compensation and as a substitute for a suffered wrong. Not all awards of money are damages. A party cannot sue for damages if he has suffered no harm. - Damages are a substitute for a suffered loss. Damages do not restore what the plaintiff lost and what the other party promised to deliver. Damages are the economic equivalent of the harm the plaintiff suffered. By awarding an economic equivalent a plaintiffs position should be economically identical to what it would have been if the other party properly performed the contract.(post-performance position) - Measure of Damages: - 1) General Damages - 2) Special Damages - 3) Costs and Losses Avoided - General Damages: the measure of general damages almost always takes the form of an award of the plaintiffs loss of value because of the breach, the cost of giving the plaintiff what he was promised, or the profit the plaintiff expected from full performance of the contract. The measure of damages works slightly different for the type of breach. - General Damages for breach of non-performance: measured by the value of their loss. Plaintiff is looking for damages - Damages= FMV of Defendants Performance-Contract Price - Damages= Value Plaintiff expected to get- Value Plaintiff Expected to give - Damages= Get-give Defendant is looking for damages - Damages= Contract Price- FMV of Plaintiffs Performance Contractors Breach - Damages=Contract Price-Contractors Cost to Perform - General Damages for breach by defective performance:

Damages=FMV as Promised-FMV as Received Special Damages: 2 types 1) reliance damages: include expenditures made while preparing to preform or preforming a contract. It also includes wasted expenditures. Also include additional expeditures cause by a breach. 2) Consequential Damages: indirect losses resulting from a breach. Include items such as the loss of profits because the buyer cannot reuse or cannot resell the contract consideration or personal injuries or property damage cause by some defect in the defendants performance. Costs and Losses Avoided: Sometimes the breach of a contract actually saves the party from consequences of poor bargaining and saves the party money. The losses avoided are deducted from the overall damages awarded. Limitations on Damages: When analyzing contract damage problems follow 2 steps (1) should be to consider the measure of all possible items of damges (2) should be to consider whether any of the limitations on damges justify reducing a plaintiffs damages 3 types of limitations 1) Avoidability: R.2d 350 Avoidability as a limitation on Damages: (1) Except as stated in subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, humiliation or burden. (2) the injured party is not precluded from recovery by the rule stated in subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss. 2) Forseeability: 351 Unforseeability and related limitations on damages: (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach o A) in the ordinary course of events or o B) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. 3) Certainty: 352 Uncertainty as a limitation on damages: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.