1. Commitment, and Consideration or Reliance: What kinds of promises are enforceable?

1. Commitment: there must be mutual assent during the creation of the contract; it must be determined if there is an expression of a promise, undertaking, or commitment.

• Must distinguish between statements of future intent or preliminary negotiations on the one hand and statements of promise, undertaking or commitment on the other
• commitment cannot be illusory: must be viewed as serious by a reasonable person

1. was there a promise?
2. was there a serious promise: as opposed to a promise made in jest

• offer made in jest: an offer which the offeree knows or should know is made in jest is not a valid offer, and even if is purportedly "accepted" no contract is created

1. was the promise illusory: an agreement in which one party has become bound and the other party has not; lacks mutuality - at least one of the promises is illusory
2. interpretation of offers:

1. language used: can show if offer was or was not intended
2. surrounding circumstances: will be considered by courts in determining if an offer exists
3. prior practice and relationship of the parties: also used for interpretation
4. advertisements: most advertisements are not offers to sell because they do not contain sufficient words of commitment to sell

1. Consideration: the price for enforceability in the courts; a legally enforceable contract must contain a bargained for change in legal position between the parties

1. elements of consideration: there must be a bargained for exchange between the parties and that which is bargained for must be considered of legal value (some benefit to the promisor or detriment to the promisee)

1. bargained for exchange: requires that the promise induce the detriment and the detriment introduce the promise (Maughs v. Porter: was an act)
2. gift: if either parties intended to make a gift, he was not bargaining for consideration, and this requirement will not be met

1. if the promisor's motive was to induce the detriment, it will be treated as consideration; if the motive was no more than to state a condition of promise to make a gift, there is no consideration

1. adequacy of consideration: courts will generally not question this; however courts of equity may inquire into the relative values and deny an equitable remedy where the find a contract to be unconscionable

1. token consideration: where consideration is entirely devoid of value (a token) it will usually not be legally sufficient
2. sham consideration: evidence may be introduced to show that the consideration was not paid and no other consideration given in its stead
3. courts may find there to be no consideration when the bargain is unconscionable - need to balance with freedom of contract
4. possibility of value: adequacy of consideration will be found even though the value never comes into existence if there is a possibility of value in the bargained for act
5. majority view: detriment to the promisee in performing an act or making a promise is the exclusive test of consideration. The fact that this act or promise may confer a legal benefit on the other party, taken alone, is not sufficient consideration

1. past consideration: a kind of situation in which the bargain is missing is that in which the promise is made in return for detriment previously suffered by the promisee; a misnomer since it is not consideration at all

1. usual situation is one in which benefits were previously received but not requested
2. a promise to pay for services received in the past is usually held not to be supported by consideration (Mills v. Wyman: no obligation to pay person for taking care of son, because it was never requested)
3. however certain types of promises to pay for past services or benefits received may be binding without consideration (if the recipient has incurred a substantial benefit from the services)

1. Offer and Acceptance: When is a contract formed?

1. Introduction: questions to ask in a contract situation:

1. Was an operative offer ever made, and who made it?
2. Was that offer still operative when is claimed as an operative acceptance was made?
3. Was there an operative acceptance?

1. The nature of offers

1. mutual assent: need to agree to the same bargain at the same time (objective standard)
2. language:

1. no technical rule available as to what makes an offer. Words of ambiguity will be construed in favor of the offeree.

1. surrounding circumstances: offers made in jest, anger, or by way of bragging, and the statement is reasonably understood in this context, will have no legal effect
2. prior practices: the courts will look at prior relationships of the parties and practices to determine if certain remarks constitute an offer rather than negotiations
3. advertisements: usually construed as invitations for offers, announcements of prices at which the seller is willing to receive offers

1. exception: when the langugae of the advertisement can be constructed as containing a promise (nothing is left open to negotiation), sometimes the courts will treat an advertisement as an offer

1. example: store advertised a coat worth $140 or $1 to first come first served. Valid offer. Lefkowitz v. Great Minneapolis Surplus Store.

1. definiteness of terms: the more definite and certain the terms of a communication are, the more reasonable the receiver’s expectation that the sender has expressed an intention to contract
2. definite and certain: basic test is whether enough of the essential terms have been provided in the offer so that a contract including them would be capable of being enforced. Essential elements include identity of the offeree, identity of the subject matter, price to be paid, time of delivery, payment or performance, quantity involved, and nature of work to be performed.

1. identification of the offeree: a statement must sufficiently identify the offeree or class to which he belongs to justify the inference that the offeror intended to create a power of acceptance
2. identity of the subject matter: the subject matter of the deal must be certain since a court can only enforce a promise if it can tell with reasonable certainty what the promise is
3. inference of reasonable terms: a court may supply terms which are left out. These include a reasonable price and reasonable time.

1. The duration of offers, and options

1. termination of offers: if it can be established that the offer has been terminated, and in what fashion, then the offer cannot be enforced because the mutual assent requirement will not exist

1. revocation: the offeror may terminate an offer by communicating revocation to the offeree before acceptance
2. indirect revocation: an offer is revoked if the offeree indirectly receives correct information from a reliable source of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
3. option: a distinct contract in which the offeree gives consideration for a promise by offeror not to revoke an outstanding offer

1. Acceptance

1. communication: to have the power of acceptance the offeree must have knowledge of the offer

1. Defenses

1. The Statute of Frauds (the requirement of a writing)

1. the following types of contracts must be in writing:

1. an agreement that by its terms is not to be performed with in a year from making
2. a special promise to answer for the debt, default, or miscarriage of another
3. an agreement for the leasing for a longer period than one year. Or for the sale of real property
4. an agreement which by its terms is not to be performed during the lifetime of the promisor

1. Public Policy

1. parents should not be able to make settlement agreements regarding child support payments before the court reduces arrearages to a final judgment (Williams v. Patton)

1. this rule will encourage payment of child support
2. equalize the bargaining positions of the parties

1. public policy prohibits waiver of alimony by wife (Favrot v. Barnes)

1. Lack of capacity

1. no one can be bound by contract who has not legal capacity to incur at least voidable contractual duties
2. a person does not have capacity to contract if:

1. under guardianship, or
2. an infant (below age of 18), or
3. mentally ill or defective, or
4. intoxicated.

1. These people can enter into a contract and enforce it against the other party, but it is also voidable at their option

1. Duress - any wrongful act or threat which overcomes the free will of a party

1. duress exists if the person has been constrained to do something other than what he normally would have done (subjective); is there a threat that has induced the promise
2. (old view) standard of "ordinary firmness" - duress is irremediable unless it is of such severity as to overcome the will of a person of ordinary firmness
3. recall case of S.P. Dunham v. Kudra (duress was present when P was forced to give up the fur coats)
4. economic duress - test it to see if there was a threat which coerced the person to give money that they otherwise would not have
5. threat to breach a contract - there will be duress in this situation if the threatened breach would, if carried out, result in irreparable injury that could not be avoided by a lawsuit or other means, and the threat is made in "breach of the duty of good faith and fair dealing"

1. remedy - the party claiming duress is allowed to recover an amount sufficient to undo the unjust enrichment that the other party has obtained (this is restitutionary)

1. Misrepresentation - can be used as a defense against enforcement, or as grounds for rescission or damages

1. levels of responsibility of different kinds of sellers:

1. caveat emptor - buyer beware
2. duty to give an honest answer - must believe what he tells the buyer is correct
3. duty to give an accurate answer - under no obligation to volunteer information - "silence alone is insufficient to constitute fraud unless there is a duty to speak"

1. duty to speak - if you know someone is misrepresenting something to a buyer (Cushman v. Kirby - husband had a duty to tell of water problems when he heard his wife tell buyer that there were no problems)

1. duty to give a complete answer - must be complete, but does not have to volunteer information
2. duty to disclose - a seller is obligated to disclose without need for an inquiry all information known to it that might bear on the buyer’s decision

1. generally, only affirmative statements can serve as the basis for a misrepresented action

• exception: positive concealment - actionable even though it is not verbal

1. duty to investigate - a seller is obliged to conduct a complete and accurate investigation and to disclose fully all material information without being asked by the buyer

1. elements of proof required:

1. other party’s state of mind - not usually necessary to prove misrepresentation was intentionally made; a negligent, or even innocent misrepresentation is generally sufficient to avoid the contract if it goes to a material fact
2. justifiable reliance - must show reliance, and that that reliance was justified
3. must be misrepresentation of facts - not just opinion

1. Mistake - a belief that is not in accord with the existing facts

1. general categories of mistake:

1. mutual mistake - mistake made by both parties; Restatement has three requirements:

1. basic assumption - basic assumption upon which the contract was made
2. material effect - the mistake must have a material effect on the "agreed exchange of performances"
3. risk of mistake - the adversely affected party must not bear the risk of mistake

1. unilateral mistake - mistake made only by the one party seeking avoidance; traditionally no rescission for unilateral mistake; modern rule allows rescission, but difficult to obtain; requirements:

1. same three as above, but with one additional
2. either of two things must be the case: (a) the mistake is such that enforcement of the contract would be "unconscionable" or (b) the other party had reason to know of the mistake, or his fault caused the mistake
3. most common unilateral mistake occurs with construction bids

1. types of mistake:

1. mistake in business judgement - a party to the contract may realize after some time that he made a mistake in selling so cheaply or paying so much
2. mistake in integration - parties had an agreement, but made a mistake in writing it down (remedy is to reform the contract)
3. mistake in performance - one party in his performance exceeds the agreement; usually happen without a contract and the question is whether he is entitled to compensation for the services rendered
4. misunderstandings - language used by one party to refer to something is reasonably understood by the other party as referring to something else (as in Raffles v. Wichelhaus - misunderstanding about the name of the ship "Peerless")

1. parol evidence may be given for purpose of clearing up misunderstandings

1. mistake in basic assumptions - an agreement is apparently reached, the language correctly recorded, but the parties were mistaken in the sense that some of the relevant assumptions upon which the deal was based were incorrect

1. Unconscionability - (procedural) an absence of meaningful choice on the part of one of the parties together with the contract terms which are unreasonably favorable to the other party. To determine if a meaningful choice is present in a particular case, (substantive) consideration must be given to all the circumstances surrounding the transaction. Terms must be so grossly unfair to shock the conscience of the court.

1. UCC view - if court finds a contract to be unconscionable the court may refuse to enforce the contract, or it may enforce the contract without the unconscionable clause
2. Procedural unconscionability - one party was induced to enter the contract without having any meaningful choice
3. Substantive unconscionability - if duly unfair and one sided
4. contract of adhesion - is one entered into between parties with unequal bargaining power (typically are standard contracts offered on a take it or leave it basis)

1. courts have been reluctant to enforce these types of contracts on the theory that the non-drafter has not really assented to the bargain
2. factors courts will consider to determine if it is an adhesion contract:

1. standardized form - the offering party refuses to modify terms
2. gross disparity in bargaining power

1. reasonable expectations - more likely to be found unconscionable if P’s reasonable expectations were thwarted

1. remedies for unconscionability:

1. refusal to enforce offending clause
2. reformation - ex: set a new fair sale price
3. refusal to enforce whole contract

1. Sales: Articles 1 and 2 of the Uniform Commercial Code

Scope of Article 2; the Gap Filling Function

1. Sales systems - all of the people, institutions, laws, and practices that are involved in transfers of ownership for a price

1. generally perform four functions that facilitate the transfer of ownership from buyer to seller:

1. FORMATION: sales systems bring buyers and sellers together and enable them to create legally enforceable transfers of ownership
2. TERMS: sales systems provide a set of standard terms that govern the transfer of ownership
3. PERFORMANCE: sales systems provide a set of delivery institutions that facilitate the possessor, legal, and symbolic transfer from seller to buyer
4. REMEDIES: sales systems enforce agreements to transfer ownership by giving the aggrieved buyer or seller various remedies for breach by the other

1. relationship between sales and law: three ways in which sales law has an impact on sales systems:

1. law of sales is crucial in instances when normal business relationships break down and the parties end up in the litigation world
2. when the parties to a sales agreement negotiate informal settlements to disputes, the will probably do so in the "shadow of the law"
3. legal systems help dictate the terms of various forms that business people use in conducting transactions within a given sales system

1. functions of a code in sales systems

1. a gap filler - covers areas that may be left out of a contract
2. article two v. Common law as a gap filler: Article 2 is more predictable and generally more uniform
3. benefits of common law:

1. can help define terms that the UCC has left undefined
2. the common law still defines parameters of related doctrine
3. some common law doctrines are inferred in the UCC

1. scope of article 2

1. courts should apply the rules in litigation with reference to how the parties acted when they were not in litigation
2. four ways in which a UCC gap filler will be superceded:

1. a gap filler will not apply to a particular term if the contract itself specifies what that term should be
2. even where the parties’ written contract is silent on a particular matter, the parties repeated occasions for performance within that contract may establish an agreement by implication
3. course of dealings - where the parties past dealings with one another have established a particular way that the parties do business with one another, the history may establish certain standard terms between the parties
4. usage of trade - if there is a custom in a particular industry concerning a performance term, that custom will prevail over the UCC gap filler whenever the two are inconsistent

1. hierarchy: express terms control both course of dealing and usage of trade and course of dealing controls usage of trade
2. mixed contracts - those involving a combination of goods and services, or a combination of goods and something other than services

1. predominant purpose test is used to determine whether the predominant purpose of the transaction is to sell goods or services
2. also use the gravamen of action test - the court determines if the gravamen of the action (the source of the complaint) is with the goods or services portion of the transaction

1. the functional consequences of Article 2 depend on what type of merchant the person is:

1. general business practices - answering mail, giving firm orders
2. implied warranty of merchantability
3. merchants general duties of good faith and standards of fair dealing in the trade

1. Formation
2. Statute of Frauds
3. Parol Evidence
4. Warranties, warranty disclaimers, and remedy limits

1. UCC warranties
2. Magnuson-Moss Warranty Act
3. Disclaimers and remedy limits

1. Performance and non-conformity
2. Seller's remedies for buyer's breach
3. Buyer's remedies for seller's breach