contracts 101: nuts & bolts of contracts law

Contracts 101

Michael DeBlis III, Esq.

Partner

DeBlis Law

Introduction

• Did the parties form an agreement?

• This deals with the law of offer and acceptance

• There can be no true contract unless the actions and words of the traders manifest a mutual, objective assent to be bound by the terms of an agreement

Introduction

• Impact of ambiguity of language or mistake of the traders as potentially precluding the formation of the agreement

Steps

• Step 1: Can you find an offer?

• Step 2: If you can find an offer in the fact pattern, at the time acceptance was attempted, was the offer still outstanding (life of offer)?

• Step 3: If you find an offer and it was still open for acceptance at the time it was the object of the attempted acceptance, was there a defective acceptance?

Major Truths About Law of Contracts

• Courts favor the reconstruction of events which occur w/in the negotiation process so as to conclude that a contract has been formed (positive bias in favor of K formation)

• Technique for achieving positive reconstruction of events is the objective theory of contract formation: Ct. reviews words and actions of the traders and evaluates them through the eyes of the reasonable person. It is what a reasonable person would have believed that alone has legal significance

Step 1

• Step 1: Can you find an offer?

– Look for a stipulation that an offer is outstanding

– If offer is n/ stipulated, you must find an objective manifestation of a present intention to form a present contract

– That manifestation must have been communicated to the other party

Three Elements to Every Offer

• Three elements to every offer

– Intent: There must be an objective manifestation to form a present contract right here and right now

– Content: Offeror must set forth the essential terms of her proposal or else a reviewing court and offereewould never know what to accept or to enforce

– Communication: Communication of that intention and those terms to a person in the fact pattern who is intended by the offeror as the offeree

Intent

• State of mind Qs: Objective test: We don’t ask Dr. Bear subjectively whether he thought there was an offer – he has a $25K motive to say “yes.” Instead, would a reasonable prudent person situated as was Dr. Bear understand that a person grabbing you and shaking you would be making an offer?

Intent

• Preliminary negotiations: These questions call on you to decide whether at the point one of the parties thinks he has formed a contract, the actual discussions had merely been a discussion of possible future business (preliminary negotiations) or whether the parties had just done present business (exchanged offer and acceptance)

Intent

• Is there a potential agreement? Has he accepted a present offer or merely reacted enthusiastically to a preliminary negotiation?

• How do you make the distinction? Apply objective theory of contract formation. Place great emphasis on facts. Look at setting – we are told this was a business letter – that’s a neutral fact. People negotiate and extend offer and acceptance by letter. What if this same statement was made at a cocktail party – far less likely that a court would find offer.

Intent

• Tip: If you are judging a particular communication, the closer that communication comes to spelling out all of the essential terms of the proposed agreement so that the only thing left for the other party to do is to say, “I accept,” then the more likely it is that a party that was that specific as to the essential terms was manifesting a present offer

Content

• Offeror must set forth the essential terms expressly or w/in range of permissible implication

– Identify parties to proposed K,

– Identify the subject matter of proposed exchange

– Time for performance, and

– Price

Content

• Under CL, a communication that lacked any of these terms was too indefinite to constitute an offer. The trend of modern decisions is to favor reconstruction of events that happened at formation stage so as to conclude that a contract has been formed

Content

• CL reform: If in the fact pattern there is total silence by traders w/ respect to one of the essential terms of the bargain, ct. will attempt to salvage transaction by treating the parties’ mutual, total silence as an objective manifestation of consent to trade on a reasonable term

Content

• What is a reasonable term? If these parties have done business before, a reasonable term would be inferred from their prior history. This is called course of performance. Takes precedent over general market custom in determining what would be the reasonable term for these two traders.

Content

• If these two parties have never done business before, court would attempt to find a commercially reasonable term in customs and mores of market place

Content

• There must be total silence – key to cl. If parties were subtle in addressing a disputed term but did so in an ambiguous or half-hearted manner, then at CL no court could imply a reasonable term b/c that would be making a bargain other than the one the parties sought to fashion

Content

• UCC: If both traders are merchants and goods are the subject of their attempted exchange, code permits flexibility in settling essential terms. First, merchant traders can adopt term setting machinery that will fix the content of an essential term in the future. If the manufacturing seller agrees to abide by the same trade journal’s quotation, the parties have formed a contract today – 11/17 – though neither of them know the price term. Their agreement to term setting machinery is sufficient to give them a contractual relationship as of the exchange of offer and acceptance.

Content

• Under UCC, on 11/17, buyer can approach seller, give all the essential terms, accept price, and then say, “you and I will agree on price in second week of Jan.,” If the seller consents, their agreement to agree in the future w/ respect to filling in an essential term is binding.

Content

• What happens if trade journal suspends publication in late Dec.? Or what if buyer becomes disillusioned and doesn’t agree to any price that seller assents to? Does that defeat contract formation? No, in both instances, the contract was formed on 11/17 and nothing can be done subsequently to defeat formation. If trade publication suspends w/o fault of either party, ct. will imply a reasonable term to salvage bargain

Communication

• Communication of that intention and those terms to a person in the fact pattern who is intended by the offeror as the offeree

Step 2

• If you find an offer at time acceptance was attempted, was the offer still outstanding?

Step 2

• An offeror is in complete control of the terms upon which she creates the power of acceptance

• If she specifies that her offer is to expire on a certain date or on the occasion of any specified event, the power of acceptance is explicitly limited by those terms no matter how unreasonable.

• No contract may ever be created after the point fixed in time by the offeror for the expiration of that offer

Step 2

• What if the offeror says nothing concerning the life of the offer? This will test your understanding of the basic elements of contract construction that fix the life of the offer in the absence of it being set by the offeror

Step 2

• Offer expiring under its terms: Lapse of time. Offers, like people, die of old age. If the offer sets no expiration date by implication of law, it is open for acceptance for a reasonable time only. Never assume that, “it’s open for a reasonable time.” Use facts to flesh out what you think the reasonable time would be.

Step 2

• If John offers to sell you a carload of ripe bananas in an unrefrigerated railroad car in CA on 7/15 and says nothing about the life of the offer, it’s probably open for only one minute.

• On the other hand, what if the offer is for diamonds and offeror says nothing about life of offer? This offer would be open for a long time. The subject matter (i.e., diamonds) is n/ perishable and the price is n/ volatile – this is how you analyze what is a “reasonable time”

Step 2

• Operation of law

– Death or destruction of subject matter terminates the offer by operation of law. John offers to sell you his home for $80K. Fire destroys residence. John’s offer to sell is revoked by operation of law. Same thing happens if there is death or insanity or illegal incapacity of the offeror or the offeree –offer is terminated, revoked by operation of law

Step 2

– Supervening illegality of the proposed subject matter: If subsequent to communication of offer, but prior to acceptance, the government intervenes and declares proposed bargain illegal, the offer to perform it is revoked by operation of law

Step 2

• Termination by rejection: You offer to sell John your car for $10K. John says, “no.” John’s rejection as a matter of law terminates your offer. John, after spotting you shining your Porsche, can n/ form a contract by coming back to you on his hands and knees and begging, “I meant to say, yes!”

• Ten seconds after John said, “no,” there was no longer anything left for him to accept. Offer died a brutal death at hands of John’s rejection

Step 2

• Revocation by offeror: Even though offeror expressly states that he will keep the offer open (one week to think about buying my home), an offer is still inherently revocable at any time prior to acceptance. As unfair as this might be, it’s the law.

Step 2

• Can you get around this rule that an offer is inherently revocable at any time prior to acceptance even though the offeror gave you one week to think about buying his home? Yes.

Step 2

• Three Exceptions:

• First, purchase an option over offeror’s offer to sell you his home for $80K. For example, “I’ll pay you $ 500 if you will stay by that commitment to give me a week to think about it.”

• An option is always a contract w/ its own offer, acceptance, and its own separate consideration (though nominal). If you have formed an option, the offeror’s offer to sell you his house is irrevocable under the terms of that option. This is a creature of cl

Step 2

• Second, terminate offeror’s power of revocation under estoppel. If offeror told you that you had a week to consider his proposal, and you changed your position in foreseeable reliance on that statement, courts would rule that offeror is estopped from revoking his offer given your foreseeable detrimental reliance. Creature of common law.

Step 2

• Third, merchant’s firm offer (creature of UCC): Only the offeror has to be a merchant. The offeree need n/ be a merchant.

• If goods are the subject matter of the attempted exchange, then an offer which is in a signed writingby a merchant trader is irrevocable according to its terms.

Step 2

• If it says, “you have 30 days,” then you have 30 days. There need not be an option or evidence of detrimental reliance. Code makes merchant’s written offer w/ representation of stability enforceable under its terms for up to 90 days.

• Offeror doesn’t have to name a date, but be sure that (1) the offeror is a merchant, (2) that goods are the subject matter of the transaction, and (3) that there is a signed writing.

Step 3

• If you have found an offer and it is still outstanding, ask whether there was a defective acceptance

Step 3

• There are no magic words for acceptance

• Acceptance must amount to a present unconditional, unequivocal assent to each and every term of the offer

• If the response of the offeree bears that quality, at what moment in time is the contract formed?

Step 3

• Mailbox rule: If parties are operating at a distance and communicating w/ one another, when does the offeree form the contract?

Step 3

• The contract is formed w/ the dispatch of the offeree’sacceptance if it is communicated in a commercially reasonable manner – a manner that is at least as fast and reliable as the one utilized by the offeror.

• Under the “modern version” of the mailbox rule or depositor acceptance rule, a contract is formed the moment the offerorplaces her acceptance in the mailbox even though the offeroris unaware of it. The offeror is still bound though he doesn’t know that formation has occurred. All risk of delay, misdirection or nondelivery is born by the offeror under the depositor acceptance rule!

Step 3

• What happens if the offeree unconditionally and unequivocally assents to every term but doesn’t use a commercially reasonable channel of communication? A contract can still be formed but it will be formed only upon receipt by the offeror and in the meantime the offer remains inherently revocable at any time prior to acceptance.

Step 3

• CL Rejection/counter-offer rule: Major problem under common law is a rule that was developed more than a century ago. If the offeree responds to an offer in any way that involves tampering w/ the terms proposed by the offeror, as a matter of law n/ only is there no contract, but the original offer is eviscerated. Called “rejection, counter-offer rule.” It’s a huge barrier to contract formation

Step 3

• CL gave offeree a narrow window of opportunity. If offer created in the offeree the power to form a contract, in order to exercise that power, he has to make an effective acceptance.

• At CL, an effective acceptance was referred to as the mirror image of the offer. Any attempt by offeree to disrupt the terms of the offer was fatal to acceptance—counter offer rule

Step 3

• Example: (1) “I offer you my home at 500 Smith Street for $100K, 15 year mortgage at 11%.” This is a present offer.

• (2) Offeree responds, “Will give $90K, cash.”

• (3) Owner replies, “cannot reduce price.”

• (4) Offeree says, “I accept.”

• Analysis: If this is an offer, (2) is n/ an acceptance because it’s not the mirror image of the offer. What’s worse, it’s regarded as a rejection, counter offer. The offer is dead on arrival. If there had never been communication number three, there is nothing that the offeree could do to form a contract other than becoming the source of a counter offer. But there was communication number 3: “Cannot reduce price.”

Step 3

• Number 3 is an objective re-manifestation on the part of the homeowner of a continued willingness notwithstanding the rejection counter offer to trade on the initial terms. It goes back and refers factually and incorporates by reference everything that was included in communication number one.

• And here comes number 4: Exactly what was favored by common law. No ifs, ands or buts about it: mirror-imaged acceptance: “I accept.” Here is how to analyze this hypo: (1) offer, (2) rejection, (3) counter-offer and revival of offer, and (4) mirror-imaged acceptance

Step 3

• Are there any other limitations on the mirror-image rule other than looking for the lucky presence of a revival by the original offeror? Yes

Step 3

• Exception 1: A mere request by the offeree to the offeror that the offeror consider different terms which makes it clear that the offeree is n/ rejecting the offeror’s offer obviously does n/ form a contract. At the same time, it does n/ automatically trigger the rejection-counteroffer rule.

Step 3

• Example: “I will give serious thought to your offer to purchase your home for $100K on a 15 year mortgage. In the meantime, would you consider an immediate transaction of $90K in cash?”

• This does n/ form a contract, but at the same time it does n/ trigger a rejection/counteroffer. Therefore, it leaves open the possibility that the offeree could have a change in heart one hour later, call up the offeror, and accept the offer. In this scenario, the offer would still be alive!

Step 3

• Exception 2: Merely making explicit that which was contained in an offer or attached to the offer by operation of law does n/ trigger rejection-counter-offer rule. This arises in the case of a merchant seller where an implied warranty of merchantability has already been attached to the offer. If there is no disclaimer, it is already a part of the K and the offeree has merely made explicit a term implied in the K by operation of law.

Step 3

• Compare UCC: If goods are the subject matter of the attempted exchange and both parties are merchants, then what is the fate of the terms that are articulated by the offeree in the course of an attempted acceptance?

• Setting the scene: Offeree accepts offer and then goes on to add terms of her own. At common law, this would trigger rejection-counter-offer rule which insists on mirror image.

• Under UCC, there will always be a K. The only issue is the fate of the terms originating w/ the offeree. There is no more drastic a difference between life under the UCC for merchants and the old cl.

Step 3

• First, there must be an acceptance—offeree must have attempted an acceptance. If offeree does n/ wish to accept offeror’s terms but is willing to do business on his own terms, offeree should make an explicit rejection-counteroffer. Neither an offeree nor an offeror has to be forced into playing this game.

Step 3

• For example, if an offeror wants to make certain that, as a merchant, she will never be bound to any terms other than those in her offer, she should make an iron-clad, “take it or leave it” offer.

• If an offeree attempts to accept an iron-clad offer while tampering w/ its terms, he’s taken the bait hook, line, and sinker. Why? He’s bound to a contract that contains only the terms of the ironclad offer.

Step 3

• Moral of the story. Beware of the offeror who does n/ protect herself w/ an ironclad offer and an offereewho surreptitiously does n/ make a rejection-counteroffer but who tries to accept while changing certain terms of the proposed business deal. Though fatal under cl, there will always be a K under A II section 207

Step 3

• Only issue is the fate of the terms originating w/ the offeree. This rises and falls on whether the terms originating w/ the offeree are consistent or inconsistent w/ the offer.

Step 3

• Consequence of consistency: If the terms proposed by the offeree are consistent w/ the terms of the offer, a contract is immediately formed. The terms of the K are the terms of the offer as modified by the consistent additional terms proposed by the offereeUNLESS the offeror speaks out and promptly rejects the offeree’s consistent additional terms.

Step 3

• Breaking it down: Offeror is in catbird seat, but if offeree accepts w/ consistent additional terms and offeror does n/ promptly speak out and reject them, a K that contains the terms from the offer as supplemented by the acceptance has been formed under the Code.

Step 3

• What if the terms proposed by the offeree are inconsistent? A contract is immediately formed, but it contains only the terms of the original offer.

Step 3

• Breaking it down: Inconsistent terms proposed by the offeree do n/ become a part of the contract unless the offeror expressly speaks out and assentsto them.

Step 3

• How do you know whether the terms in the fact pattern are consistent or inconsistent?

• Start out w/ offer – look at impact of the terms on that offer.

Step 3

• Economic impact: If the terms proposed by offereesignificantly shift the economic advantage of the proposed transaction, they are inconsistent.

• Risk allocation: What if the terms proposed by offeree do n/ alter the economics of the transaction, but they dramatically shift the incidence of loss? If the terms proposed by the offeree significantly re-allocate risk from the allocation of risk contained in the offer, the terms are inconsistent.

• Per se rule: If any term of the acceptance would impair a remedy that would otherwise be available in event of breach of that contract, the term is inconsistent. Ex. Offeree who accepts and then attempts to assert an arbitration clause in lieu of a litigation term – that is not consistent

Step 3

• Bilateral in nature

– Parties – A and B – form agreement by exchange of promises

– A promise standing against a promise forms an agreement

Step 3

• Unilateral formation

– A – offeror – holds forth a promise. Acceptance on the part of the offeree takes the form of doing a specific act

Step 3

– How do you accept an offer to bargain in the unilateral mode? Only by total completion of the requested act. What about the rule that an offer is inherently revocable any time before acceptance?

– W/ just two weeks left, Andy could say, “I revoke.” There must be some protection for Brad. It is indecent what Andy has done. Two rules designed to protect Brad!

Step 3

• Rule 1: Rule of construction: Whenever possible, Court will construe the offer as inviting formation in the bilateral mode – by acceptance in giving promise. This is the statutory rule under the UCC. An offer to purchase goods may be accepted either by the seller’s prompt shipment of conforming goods (form bargain in the unilateral mode) or the promise to promptly ship them (forming a K in the bilateral mode). But at cl, if Andy clearly states that he desires formation in the unilateral mode, this rule of construction wouldn’t be helpful to Brad b/c he never said, “I promise.” He never tried to form bargain bilaterally.

Step 3

• Rule 2: Supplementary rule: Once the offereebegins substantial performance of the requested act, he does n/ form the K but he does cut off the power of the offeror to revoke so as to give the offeree a reasonable opportunity to complete that which he has begun. If Brad had pulled all but two weeds, he would clearly have substantially performed, and the offeror would have been prevented by cl rule from revoking the offer giving Brad a reasonable opportunity to complete his work.

Step 3

• Note: Offeree is under no obligation to go forward and to complete the requested act. The offeree who starts the act of performance is never obliged to finish it. There is only one way that the law permits the parties to be bound by merely exchanging promises and that’s to form a K in the bilateral mode.

Ambiguity & Mistake

• In appropriate circumstances, they can preclude the formation of an agreement

Ambiguity

• When language betrays

• Two types known to CL

Ambiguity

– Latent: Hidden ambiguity

• If it effects an essential term of the bargain, precludes the formation of an agreement

• If at the formation stage of the bargain, neither trader recognizes that a term which is used to describe one of the essential terms is reasonably susceptible of more than one meaning, and each party has subjectively attached a different meaning to that term, their bargain is flawed by a fatal latent, hidden ambiguity.

Ambiguity

• There can be no K b/c there is no basis to favor the subjective reasonable interpretation of the buyer to the very different subjective – but equally reasonable interpretation being given the term by the seller. If judge has no rational basis to intervene, no remedy is available. If latent ambiguity affects an essential term, it precludes formation of a K

Ambiguity

– Patent: Obvious ambiguity

• If it effects an essential term of the bargain, precludes the formation of an agreement

• At the formation stage, the traders are guilty of being sloppy (i.e., they frame one of the essential terms of the agreement in language that is susceptible to more than one reasonable meaning). Ambiguity is obvious. Yet, neither party takes the opportunity to clarify their particular understanding. If parties are equally guilty of failing to clarify an obvious ambiguous verbal discrepancy in their bargain, there can be no K b/c there is no rational basis to prefer the interpretation of the negligent seller to the different interpretation of the equally negligent buyer

Ambiguity

• But what if one of the parties is free of fault b/c as to him the ambiguity was hidden while the other party is guilty of fault b/c as to him, the ambiguity was obvious? Now the judge has a reasonable basis to conclude that there was a contract – to protect the interests of the innocent party. The court gives the ambiguous language the subjective definition intended by the innocent party, and tells the other poor slob that he is S.O.L. b/c he was at fault

Mistake

• The problem here is not that the words or acts of the parties are ambiguous but that they don’t convey the actual intention of one or both of the traders.

Mistake

• Fact pattern one: B/c they were uttered by one or both of the traders in the course of their own personal mistakes (i.e., mistakes of the traders themselves)

Mistake

• Mutual mistake fact patterns: A and B share a common mistake

– At formation stage of bargain, both traders are mistaken. A, owner of a canvas, promises to sell it for $1M, each acting under the impression that it is a work of Picasso. Both parties are mistaken –the work is a forgery. Parties are morally innocent but a fundamental factual assumption is inconsistent w/ reality.

Mistake

– What is the impact of a mutual mistake upon the terms of the agreement? Is it a contract? Probably, yes. Each party has a remedy in equity of rescission. Either the buyer or the seller can rely upon the “after arising” discovery as a means to refuse to perform on the buyer’s promise to pay the $1M

Mistake

– First distinction: First look at the gravity of the mistake in terms of its importance to the bargain. If mistake goes to the heart of the transaction (i.e. essence of exchange) this is the type of mistake that warrants complete relief.

Mistake

– What happens if the mistake doesn’t go to the essence of the exchange? Assume both parties are mistaken: A promises canvas and B promises $1M, each assuming Picasso painted it in ’31 but it turns out – upon appraisal – to be the work of the master in ‘32. What is the result of this mistake? Nothing. This mistake goes to a collateral quality, n/ the essence of the exchange and parties are n/ allowed to cancel or rescind Ks for mistakes that don’t have that vital quality.

Mistake

– Second distinction: Where are the parties the moment they discover they are mistaken? Before there can be a remedy of cancellation, K must still be executory in nature. Meaning the parties must exchange promises to buy and sell the canvas, but neither party has yet performed. What happens if the seller delivers the canvas, the buyer pays the money, and a year later the canvas is discovered to be a forgery? Relief is unlikely. Courts don’t like to rewrite history. Only willing to give relief if bargain is executory and the mutual mistake goes to its essence.

Mistake

• Unilateral mistake fact patterns: Blunder of only one of the traders (A is mistaken, B is not)

– Only one of the traders is mistaken. Make distinction btwn:

• Mechanical miscalculations

• Errors in business judgment

Mistake

• Mechanical miscalculations

– May provide grounds to relieve mistaken party. Depends entirely upon SOM of the other trader –the non-mistaken party – and whether she has formed a commercially reasonable expectation.

Mistake

– How do you identify a mechanical miscalculation (MM)? A MM involves a bargain that I did n/ intend to make on these terms. My intention was betrayed by some error in math (mathematical miscalculation) or a failure to read the fine print. Test is whether the bargain made is the bargain intended.

Mistake

– Can you raise it as a defense? Depends entirely on state of mind of other party and whether he has formed a commercially reasonable expectation. If the other party did n/ subjectively know that I made a miscalculation and as a reasonable person would have had no grounds to suspect it, then I have no basis for a defense. I must eat the deal.

Mistake

– But if the other party is n/ innocent, and recognizes that this was an offer too good to be true, then there is no K. Even under objective standard, you cannot pounce upon what you recognize to be the mechanical miscalculation of another trader. If he belatedly discovers his mathematical error, he may invoke in equity cancellation or rescission to get out of K

Mistake

– If A makes a mechanical error and B forms a commercially reasonable expectation, A is bound. But if B has no commercially reasonable expectation b/c he knew or should have suspected the error, A has a defense

Mistake

• Errors in business judgment

– Courts are not sympathetic towards blundering party and under no circumstances will they afford that party any relief.

– Errors in business judgment are what makes the capitalistic system work.

– Although offeror knew that he was taking offereefor a hellacious ride, the offeree has no defense.

Mistake

• Fact pattern two: Where the intention of the traders was betrayed b/c of some third party making an error in communicating the terms of the bargain.

Mistake

• Here, the offeror knew what he wanted to say, but a TP selected as an intermediary in the transaction made a mistake in the transmission (i.e., dropped a “zero” off of the price tag).

Mistake

• Rules are identical to those applied to mechanical miscalculations. If I selected Western Union as the offeror, and if the message that Western Union delivers dropped a zero from what I had written in the dispatch paper, whether the K is predicated upon your acceptance of the telegram that you receive depends upon whether you had a commercially reasonable expectation.

Mistake

• If you neither knew nor as a reasonable person had grounds for suspecting that there was an error in the transmission, there is no K.

• But if you knew that this was an offer too good to be true, you have no such expectation and I have a defense. Also, I have a cause of action against Western Union.

Adopting a Writing (PER)

• Facts must tell you that

– Parties have formed an agreement,

– That they reduced the agreement to a written expression,

– That the parties are now litigating the terms of that agreement,

– One of the parties seeks to bring in evidence of some term that is n/ found w/in the four corners of the writing they created


This is the PE question!


• Systematic approach to response

– First, make sure all of the facts previously discussed exist (A and B have formed a K, reduced it to writing, they are in litigation, and that someone’s trying to come in w/ evidence of a term of that agreement that is n/ in that writing)


• Second, is there an integrated writing?

– PER protects only an integrated writing

– Intent of the parties: Both parties must have intended the written instrument as the full and final expression of the terms of their agreement

– If they did n/ create the writing w/ that intent, it is n/ integrated and the PER has no application


– Step 1: Who decides whether the writing is integrated? The trial judge. PER is a rule of substantive law. It has nothing to do w/ evidence, but whether the evidence is legally competent


• Third, judge looks at evidence that other party is bringing in. She asks herself, “Is that evidence parole evidence?”

–What makes evidence parole evidence is n/ whether it is written or oral; it has nothing to do w/ the form of the evidence but w/ the time


– PE is any evidence – whether written or oral – of any promise, representation or understanding between the parties who have formed the integration which was arrived at prior to or contemporaneous w/ the formation of the integrated writing.

– Look to time origin of the extrinsic evidence!


– What if the evidence is that a day after A and B formed an integrated writing, they added a term? N/ parole evidence. Instead, it’s evidence of a subsequent modification, n/ governed by parole evidence rule

– Who decides whether evidence is parole in nature? The trial judge


• Fourth, if the judge rules that there was an integrated writing, and that the evidence your client is trying to introduce is parole evidence, then the next question is what impact does the parole evidence have on the integrated writing?


–Rule: You may n/ use parole evidence to contradict, vary, or add to the terms of an integrated writing


–Q: What happens if the evidence doesn’t have one of these three forbidden traits? For example, it explains an ambiguity or it defines a term. Evidence may freely be admitted b/c it has no forbidden impact. Only variation, contradiction, and additionis forbidden parole evidence.

– Trial judge makes this determination


– If judge determines that the evidence is presented in the veil of an integrated writing, that it’s parole in nature, that it has one of the three forbidden traits, the jury will never know about it. Evidence will be excluded unless proponent of evidence can bring it in


• Fifth, exceptions. PE may be admitted notwithstanding the fact that it varies, contradicts, or adds. There are three exceptions:


• # 1: Proof of fraud: Whatever interest society has in the convenience of having the deal in writing, it has a greater interest in ferreting out an individual guilty of fraud. You may always use parole evidence to prove fraud


• # 2: May use parole evidence on a theory of partial integration. Party who seeks to get evidence before jury claims that, on the day the K was formed, the parties formed a single K, but they intended this writing to cover some and n/ all of the terms of that single agreement. If judge finds this credible, then she allows evidence to go to the jury on a theory that it was only partially integrated.


• Two tests that judge must follow in making this determination:


–Conservative: Four corners test. Judge allows evidence to come in only if the writing looks incomplete on its face. Only then can the proponent introduce evidence of alleged further additional terms


– Liberal view: If the party who is offering can supply the judge w/ any credible explanation as to why the parties left this term out of the writing, then it might be admissible even though the writing on its face appears to be complete and has no obvious omissions (CA). Scholars argue that this is eroding the PER.


• # 3: Collateral agreement: Most dangerous exception. On the day the parties entered the bargain, they formed n/ one but twoagreements. One agreement is reduced to a formal integrated writing. Lawyer wants to prove to jury the terms of the second –collateral agreement. This all but swallows up the rule!


• Steps that judge must follow:

– First, judge must determine that the alleged second agreement is of far lesser importance than the subject matter described in the admitted integrated writing


– Second, no term of the alleged collateral agreement can contradict any term of the integrated writing. If the integrated writing says, “this contains all of the obligations of the seller,” then buyer would be unable to establish by a collateral agreement that the seller had one last obligation


– Third, the subject matter of these two agreements must bear some similarities so as to make it rational that the parties would have considered them as two separate agreements rather than being part and parcel of a single business deal

–Who makes this decision? The judge

Step 2

• If you conclude that traders formed an agreement, is that private bargain a K?

– Private parties form private agreements

– A K is a legal status

Step 2

• Whether a K exists depends upon two elements:

• The presence of valuable consideration –bargained for legal detriment on both sides of the exchange, and

– Two elements: It must be (1) bargained for and (2) there must be legal detriment

• Absence of defenses that would preclude formation – real defenses

– This issue organizes material on defenses to enforcement – personal defenses that render obligation of one of the parties null and void

Step 2

• The presence of valuable consideration –bargained for legal detriment on both sides of the exchange

• Four step approach toward issue-spotting

Step 2

• As you look at the fact pattern, ask yourself whether there is a bargain– At formation stage, offeror and offeree must have

consciously exchanged promises w/ a view toward altering their legal rights and liabilities. Bargain is synonymous with exchange.

– Donative transaction (including gifts) is n/a K b/c there is no element of bargain

– Past consideration is n/ valuable b/c it lacks element of bargain

– Moral obligation is n/ valuable b/c there is no element of bargain

Step 2

• If “yes,” look to the terms of the bargain. Do each of the exchanged promises or acts involve “bargained for” legal detriment to the pr/or or actor? (cut right to the chase to determine if there is valuable consideration)

Step 2

• Legal detriment defined:

– (1) Bargained for promise to perform any act which, but for this bargain, “I am not legally obligated to perform,” OR

– (2) Bargained for promise to forbear from pursuing a course of conduct which, but forthis bargain, “I am legally privileged to pursue”

Step 2

• It is the bargained for change in legal position and n/ any element of economic benefit that imparts value to valuable consideration

Step 2

• Courts use three terms:

–Want of consideration

– Failure of consideration

– Inadequacy of consideration

Want of Consideration

• Defense to formation of a K. Involves proof at formation stage of the offer and acceptancethat the other party incurred no legal detriment. The party who gave a valuable promise has an absolute defense against being held liable to perform the K: “There was no consideration so no K!”


• If, at day parties exchange promises, promise that B has given has no quality of legal detriment, A has the defense of want of consideration. In other words, A’s promise was legally valuable, B’s was not


• Legal detriment in a bilateral bargain

– Look to each of the promises. Ask: Did A’s promise involve the promise to do any act which, but for the attempted bargain w/ B, A was n/ legally obligated to perform? If so, A’s promise is valuable consideration


–Did B bring valuable consideration to this bargain? Did B promise A that she would do any act, which but for the bargain w/ A, she was n/ legally obligated to perform? If yes, she also incurred bargain for legal detriment. In that case, we have an executory bilateral K staring us in the face


• Legal detriment in a unilateral bargain

– Jack (Off/or) promises his neighbor (Ned), a teenage boy, $25 to cut his lawn. Ned can’t accept by promising, he can only accept by doing the requested act. If Ned performs the requested act and brings about acceptance of Jack’s offer, is there a K?


–Analysis: Did Ned perform a “bargained for” act which, but for the attempted formation of a K w/ Jack, Ned was n/ legally obligated to perform? Yes, Ned had no legal obligation to mow Jack’s lawn. His act has quality of legal detriment. Jack’s promise has the obligation of legal detriment. But for bargain w/ Ned, Jack had no obligation to pay him $25.


• Economic adequacy irrelevant

– Legal detriment can be shown where the party who brings valuable consideration to exchange is n/ only not injured, but he may end up advantaged!


–Hypothetical # 1: Matilda makes the following offer to her nephew, Sam: If you will take a summer job and save $ 500, I will take you to the summer home in France when you graduate from H.S. Assume Sam gets a summer job and saves $500. Does he have a contractual claim to have his aunt take him to France?


– First, did Matilda make an offer? She either made an offer of a bargain or she just made a donative declaration.


– Second, assuming proposal was construed as offer to bargain, Sam would have brought legal detriment to exchange b/c children have no legal obligation to work. The act of working is an act which but for the bargain w/ his aunt, he was n/ legally obligated to perform. Nor do children have any obligation to save –i.e., the act of conserving something in a bank account. Sam would have brought legal detriment even though he was n/ injured in any sense. He benefited in the old-fashioned way: by becoming familiar w/ work. He benefited in an economic sense: he has $500 in bank account and a contractual right to go to France.


–Hypothetical # 2: Uncle Bob makes the following offer to his nephew, Bill: If you will promise and keep your promise n/ to smokeand n/ to drink between now and your 21st

birthday, I will write you a check for $5K. Bill makes promise thus bargaining in bilateralmode.


– Test: Did Bill bring bargained for legal detriment to exchange? (1) Bill promised that he would n/ drink between now and the day he reaches legal majority. Is that legal detriment? No, it is n/ a promise to forbear from a course of conduct which but for the bargain w/ Uncle Bob, Bill had no legal right to pursue. A minor has no legal right to consume alcoholic beverages. (2) What about Bill’s promise that he wouldn’t smoke for the balance of minority? It’s illegal for a minor to purchase cigarettes. However, it is n/ illegal for a minor to consume such things.


–RULE: So long as any element of a proposed exchange carries the quality of bargained for legal detriment, it is sufficient to bind the entire promissory obligation of the other party.


– (3) What about Bill’s argument that he restricted his freedom of association for the balance of minority? This has a quality of legal detriment.

– What result: Uncle isn’t liable for 1/3 of $5K, he’s liable for $5K. COURTS ARE NOT INTERESTED IN ECONOMICS OF EXHANGE. Rationale: Parties should be free to make their own bargains.


• Exceptions to rule that courts are disinterested in economics of exchange


– Transactions that involve abuse of socially protected relationship

• Fiduciary relationship: If bargain between A and B has the characteristic of a fiduciary relationship, courts insist that there be more than merely legal detriment. They will scrutinize the pragmatic advantage of the exchange in order to decide whether it was a bargain fair in its terms. A fid. relationship is a formal relationship of trust and responsibility (example, lawyer – client)


• Confidential relationships: Chief characteristics are trust, independence, and influence. If A and B have a confidential relationship, law will look beyond issue of legal detriment on both sides of exchange and scrutinize it for fairness of terms


– Promises rendered non-valuable b/c one of the parties has n/ incurred legal detriment in the course of the bargained-for exchange. This is known as the illusory promise

• If, at the formation stage, one of the parties does n/ incur legal detriment b/c he retains an unfettered election to perform or n/, his promise is illusory


• Full performance as cure for missing consideration

• If there is want of consideration in the fact pattern, examine facts to see if there is any subsequent performance on the part of the individual who gave the illusory promise which would cure it and result in the formation of a K


• Hypo: Buyer writes to seller: “If I decide to order 10,000 barrels of oil, you promise to (1) accept the order, (2) ship w/in one week, and (3) grant a 20% discount off of then list prices.” Seller accepts deal. Is there a deal?


• Analysis: No. Seller has the defense of want of consideration. Promises made by wholesale seller are legally valuable. But what did the buyer do? N/ a darn thing! Buyer gave an illusory promise. Moment before buyer sent letter, he was perfectly free to order goods from this seller or n/, and moment after the letter was delivered, buyer had the same measure of freedom. Advise seller to refuse on the basis of want of consideration.


• Rule: Full performance of the terms of an illusory promise cures the want of consideration and produces contractual liability. If proposal was made on 11/20 and on 12/5 Buyer sends Seller an order for 10,000 barrels of motor oil, that would create K liability. However, the date of formation would n/ be 11/20 when they exchanged communications because on that date there was no K – it was merely an illusory undertaking.


• But on 12/5, when there was full performance, Seller can’t backpedal by saying, “I shouldn’t have to ship goods b/c Buyer didn’t have to order them.” Very simply, Buyer did. “The order is on your desk, now ship the goods!”


• What about part performance of an illusory promise? While full performance cures, part performance never does. Suppose Buyer sends Seller an order for 5,000 barrels of oil. Does that cure the want of consideration? No. Seller was n/ obligated to perform unless he got the benefit of his bargain, which was that he would receive an order for 10,000 barrels.


– Implication of a legally valuable promise to overcome the fundamental flaw in the bargain at the formation stage

• Sweeping reform


• Wood v. Lady Duff Gordon: A formal written agreement was entered into in which Lady Duff made Wood her exclusive agent for one year to market her seal of fashion approval in North America. By the terms of the agreement, Wood promised three things: (1) to split any profits that he made 50/50; (2) to account to Lady Duff once a quarter for any profits; and (3) to protect the integrity of Lady Duff’s seal of fashion approval w/ necessary copyright protection. Lady Duff signed agreement in NY. Wood breached agreement w/ Lady Duff by selling her seal of fashion approval and keeping the profits. Lady Duff brought a suit against Wood seeking an accounting


• Argument: Wood raised defense of want of consideration. Wood didn’t promise Lady Duff anything – he gave an illusory undertaking: (1) he promised to split the profits 50/50 but he never promised there would be any profits; (2) he promised to account for profits quarterly but if he didn’t make any profits, there would be no obligation to account; and (3) he promised to protect as was necessary Lady Duff’s seal of fashion w/ patent registration but if he didn’t sell anything it would never be necessary.


• Analysis: Ct. examined agreement and declared that it was a business deal; that it was clear that on the day the parties met and signed the writing that they had a mutual business objective. Both parties implicitly promised they would exert “best efforts to accomplish that business objective” and the alleged want of consideration vanishes


• UCC legislates this result: In every transaction for the sale of goods, there is a legislatively imposed covenant of good faith dealing between the merchants: “I will deal w/ you in good faith seeking to bring about the commercial objective of our relationship.” Want of consideration under UCC is virtually non-existent for merchants and if it arises in a common law fact pattern, you can rely upon the Lady Duff Gordon case and subsequent performance.


–Promises rendered non-valuable b/c one of the parties has n/ incurred legal detriment in the course of the bargained for exchange – Problems of pre-existing duty


• Example: Student enrolled in a Barbricourse approaches Instructor after class and says, “I’ll offer you $100 if you promise to show up tomorrow and give another lecture on K law.” If Student were to make such an offer, his promise of $100 would n/ be binding.


• Analysis: The defect goes back to the very definition of valuable consideration. Did Instructor promise to do an act which, but for the bargain w/ Student, he was n/ legally obligated to perform? No, Instructor is already contractually obligated under agreement between himself and Barbri to give three, three-hour lectures on K law. Student is an intended TPB of that K. Instructor’s promise has no element of legal detriment b/c he has merely re-stated the tenor of an existing legal obligation.


– How can you circumvent problem of preexisting duty? Four solutions CL and UCC have attempted:

• # 1: Any alteration in tenor of existing duty overcomes defense of want of consideration and brings Instructor w/in rule of legal detriment.

– If Instructor were to change the tenor of his existing duty – no matter how insignificant the change might be (i.e., by promising to show up 30 seconds earlier than the time called for under his K w/ Barbri, or by staying 15 seconds later, he would have incurred legal detriment).


–Suppose A and B have a K and A fears that B will refuse to perform on the day that he is obligated to perform unless A pays B more money. If B promises to do his contractual duty, but only if he is paid an additional $5K, A can promise B an additional $5K but B won’t be able to enforce it b/c A has the defense of want of consideration. But if there is any alteration in the tenor of B’s duty, the want of consideration defense is overcome.


–Here’s what it comes down to. There are two different kinds of contractors who are extorting things from their Ks: those who are intelligent enough to make a small change in their preexisting duty. They win! And those who are n/ smart enough to do that. They lose!


• # 2: Even if there is no change in the tenor of the preexisting duty, if B encounters problems that were neither foreseen or foreseeable at the formation stage that substantially interfered with or burdened B’s performance, B might have an equity of rescission. If, in these circumstances, A offers B $5K more if he will tough it out in the face of this adversity and perform, A’s promise is binding on the theory that B has given up the right to invoke the equity of rescission. This is a moral doctrine.


• # 3: Accord and satisfaction supporting obligation of A to pay $5K more. B must raise a dispute w/ A over whether he was in fact bound to perform. If B raises such a dispute in good faith, then that dispute could potentially become a self-help remedy called accord and satisfaction.


• There are three steps:

– Step 1: Good faith bona fide dispute

– Step 2: Accord: Agreement between A and B resolving their dispute

– Step 3: Satisfaction: Carries out terms of accord which puts an end to dispute and puts an end to original terms of K. If there is an element of compromise between the parties’ positions in the accord, and each party goes forward and carries out the terms of the accord, A’s payment of $5K and B’s performance of the duties A wanted is called “satisfaction.” A is prohibited from litigating the issue of whether B was entitled to money


• # 4: UCC approach: Good faith modification. Code is interested in reason why B won’t perform. If B, in good faith, tells A that he can’t perform unless A is willing to pay $5K more, A is n/ obligated to make that payment or the promise (A can say, “I’ll see you in court”). But if A promises the money, his promise is binding.


• Abolishes need for dispute between parties or any new element of valuable consideration supporting A’s concession. UCC makes A’s agreement to any good faith demand by B for a modification of the terms of the original Kbinding on A the moment he consents.


• What is a good faith demand that B can bring? The good faith the code talks about is steeped in the morals of the marketplace. If other merchants in the same trade or calling would recognize that there was moral legitimacy in seeking the modification, then the modification is being asserted in good faith.


• If goods are subject matter, handle pre-existing duty problem under UCC by asking whether there is a good faith modification of the K

• If subject matter is services, look for one of three CL solutions to overcome defense of want of consideration

Failure of Consideration

• Personal defense

• Defense to enforcement of “my” K duties

• It is assumed that a K was formed at stage of offer and acceptance but if A can establish failure of consideration, then he is n/ liable to perform his K promises b/c other party (B) is already in present material breach of his promises. Consequence of being in present material breach is that consideration has failed!

Inadequacy of Consideration

• Allegation n/ that there was no legal detriment or that it failed, but that one party made a stupid bargain

• No defense at all

• IOC is permitted as a defense to subservient party in a fiduciary or confidential relationship

Step 2

• If the answer to the consideration question is “no” – i.e., one of the parties didn’t incur legal detriment – is there any substitute for valuable consideration present in this fact pattern? Inquiry: Is this a promissory estoppelfact pattern?

Step 2

• If you cannot find legal detriment on the part of one of the traders, and you cannot imply it, and the subsequent conduct of the traders does n/ cure the want of consideration, then there is no contractual relationship.

• In this case, you would proceed to the third aspect of the second issue. There may be liability for breach of a promise on the theory of promissory estoppel.

Step 2

• Promissory estoppel is a significant substitute for valuable consideration in rendering a breached promise actionable at law.

Step 2

• If P brings his cause of action on a theory of promissory estoppel (PE), it is n/ a K claim. PE is a separate, civil law theory of liability for breach of promise. It is an alternative to a contractual analysis.

• As a result of a promise that has been breached, the promisee (person to whom K is made) alleges that he is now unjustly impoverished (i.e., worse off than he was before the promise was made to him).

Step 2

• Unlike restitution interest protected in action of quasi K, to recover on a theory of PE it is not necessary for P to prove that D has been unjustly enriched. Instead, P merely must prove that he was unjustly impoverished. PE action protects reliance interest of aggrieved party.

Step 2

• Since PE is n/ a K claim, the action is n/ affected by the Statute of Frauds. The fact that a promise is oral is not a hurdle b/c PE doesn’t fall w/in SOF.

Step 2

• If, in the case of a promise to convey real estate which is oral, which has induced the promisee to make alterations of a substantial and permanent nature to the property, PE grants a decree of specific performance quieting title in the pr/ee. In this instance, there is no reasonable way to measure an award through the traditional means of reliance or money damages.

Step 2

• Elements

– (1) A promise made by one of the parties to another individual that has the foreseeable quality of inducing reliance on the part of the individual to whom the promise was made (n/ sufficient to find just a promise, promise must have had quality of foreseeable consequence of inducing reliance)

Step 2

– (2) Detrimental reliance by promisee: In fact, the promise must have induced reliance on the part of the pr/ee which could be (1) in the form of actions taken by pr/ee or (2) actions forborn but these actions must have been in reasonable expectationthat the promise would be kept!

Step 2

– (3) Breach of promise by promisor

Step 2

– (4) As a result of that breach and as a result of reliance, the promisee is worse off

Step 2

• If all four elements are satisfied, S 90 requires a reviewing court to hold the breaching pr/or bound to the terms of her K at least until the point necessary to allow the aggrieved party to recoup his reliance interest.

Step 2

• Hypothetical: John is walking down Main St. when he spots Colonel Sanders. John pours out this tail of woe and tragedy in life to the Col. Moved by compassion, the Colonel promises that he will grant John a KFC franchise to promote and market. There has been no bargain – Colonel has simply made a promise.

Step 2

• In reliance upon Colonel’s promise, John – at his own expense – enrolls in a course in chicken-ology to learn how to prepare the product. John and his wife take what little savings they have from their antique business and plow it into remodeling an abandoned building in downtown Atlanta that will function as the place of business.

Step 2

• John converts his spouse and children into ambassadors of the product: i.e., people who will eat nothing other than chicken. Colonel changes his mind and breaches his promise.

Step 2

• Analysis: John could n/ bring an action for loss of bargain for recovery of damages at law. Why? Because there is no K (i.e., no offer), so the element of bargain is missing. But Colonel did make a promise and John is worse off today than before he met him.

Step 2

• Element # 1: Would a reasonable person in the Colonel’s position have foreseen that in order to take advantage of his promise, John would have had to take steps to learn how to prepare the food? Yes. The steps that John took were reasonable – w/in realm of what was foreseeable. John would recover the cost of tuition at Foul University, any expenses that he incurred in leaving his home and taking up temporary residence there. These all shifted as element of loss to the Colonel.

Step 2

• What about the fact that John and wife have sunk the diminished family fortune into the construction and remodeling of a chicken palace in downtown Atlanta? Was that foreseeable to a reasonable person? Certainly, it would be foreseeable that some structure would be required. Assuming that John’s structure was within the realm of reasonableness, John could shift incidence of cost to Colonel; but he won’t get all of the cost, just enough to allow John to remodel structure for some other economic use.

Step 2

• Psychiatric rehabilitation of loved ones ($100K). Was this type of reliance within the realm of what was reasonably foreseeable? No.

Step 2

• To recover on theory of PE, object of law is n/ to put John in the position he would have been in had the promise been kept. Instead, it is the far more conservative approach of putting John back in the position he was in before the promise was made (i.e., the position he was in on the day the Colonel made the promise). Only protects reliance costs that were foreseeable as a consequence of the promise and that were reasonable on John’s part.

Defenses

• If you have found a bargain and qualified it as a K b/c there is bargained for legal detriment on both sides of the exchange, before you leap to the conclusion that a K has been formed, ask yourself whether the facts reveal any defenses which would preclude formation of the K. These are the so called real defenses which – if they exist –preclude formation of a K!

Defenses

• There are two types of defenses:

– Real defenses

• Defenses which, if established, preclude the formation of a K

– Personal defenses

• These defenses acknowledge that a K was formed but, if established by the party who can avail himself of the defense, render his K duties voidable

Defenses

• Look for defenses under four categories

– (1) Defenses centered on form of bargain;

– (2) Centered on problem w/ capacity of one of the parties to the bargain;

– (3) Content of the bargain; and

– (4) Defense arises b/c society takes offense at the tactics used by one of the traders in trying to form the bargain

Defenses Centered on Form of Bargain

• We’re talking about SOF. It is an oral bargain when the law requires as a price tag for a remedy that it be in writing

• Neither CL nor UCC imposes any mandatory form on the bargain. Oral Ks are valid but this factor may present a problem in litigation if subject matter of oral bargain falls w/in one of the categories of the SOF.


• If the subject matter of the oral bargain falls w/in one of the categories of the SOF and if there is no written memorandum of essential terms, then there can be no remedy at law to recover damages for breach of the K UNLESS the result of allowing D to invoke the SOF would be a gross injustice. In that case, courts will equitably estop D from hiding behind the SOF.


• Let’s begin in the simplest place: awareness of the basic subjects which, if they are the subject matter of the attempted bargain, fall w/in the statute

– (1) If the subject matter of attempted exchange is real property or any fixture permanently attached to the land, the agreement falls w/in SOF


– (2) Ks for sale of goods fall w/in SOF if their price is $500 or more

• UCC exceptions – notwithstanding the fact that the price of goods exceeds $500, an oral bargain for their purchase and sale will be enforced.

• (1) Under UCC, an oral K for the sale of goods is enforceable to the extent that the seller has delivered the goods to the buyer and the buyer has accepted delivery. The buyer’s oral promise to pay $50M for goods that have been tendered and accepted is perfectly binding


• (2) If both of the traders are merchants, a written confirmation of the terms of the bargain sent by one merchant to another satisfies the SOF both as to the sender and the recipient unless the recipient objects to its content promptly


• (3) Special goods: Goods custom-tailored or manufactured to the specific buyer’s order or specification and n/ suitable for ordinary resale. To the extent that the seller has actually begun to manufacture these goods, the buyer’s oral promise to pay for them is completely enforceable


– (3) Any K which, by its terms, is incapable of being performed w/in one year

• If there is ANY possibility – no matter how remote or improbable – that the K obligations could be fully performed w/in one year, the subject was never w/in the SOF though in actual experience it takes 50 years to carry out the terms of the bargain


• Hypo: Jack makes an oral promise to support Jill’s 3 year-old daughter w/ a $10K pay limit for the rest of her life. This oral promise is not w/in SOF. Jill’s daughter may die before attaining her 4th birthday. Since the possibility exists that Jack could fully perform on this promise w/in a year, it is n/ w/in the statute and as Jill’s daughter is qualifying for social security, Jack would still be obligated to make the oral promised payments!


• What’s the consequence of having one of these subject matters pertain to this particular transaction?


• If the subject matter of the attempted exchange falls w/in SOF, then the statute requires:

– A memorandum of essential terms signed by the party to be charged


– All that is required to satisfy the SOF is written evidence of the essential terms. The writing can be very informal. It doesn’t have to be created w/ any intent to satisfy the statute. We’re looking for evidence of terms, not intention. If, through written evidence the essential terms can be reconstructed, that evidence must relate to the party to be charged.


– It need only bare signature or authentication of the party to be charged. P satisfies SOF w/ respect to the terms of the bargain when she files the complaint

–No formal signature of the party to be charged is required – a printed letterhead is sufficient as is a fax transmission. All that’s necessary is some means of tracing that written evidence back to D.


– Any writing(s) from which the court can reconstruct the essential terms of the bargain are sufficient. What if that cannot be done? Then D, whose written memorandum is missing, can avail herself of a personal defense. K is n/ void, but her obligations are voidable. D must raise defense in timely manner. If there is a timely assertion of defense and D is n/ equitably estopped, then there can be no recovery of damages at law.


– Therefore, aggrieved party (P) has standing to sue in equity. Equity courts are n/ historically bound by SOF. Equity cts. are willing to regard part performance of the terms of the oral K as an evidentiary substitute for the missing writing. So long as the performance points to the K that the P is alleging, there may be equitable relief in a decree of specific performance

– If COA is predicated on PE, SOF has no application since PE is n/ a K claim

Centers on Problem with Capacity of One of the Parties to the Bargain

• Concern is that one of the traders is a minor or lacked requisite mental capacity


• Issue 1: Where one of the traders is a minor

– K obligations of minors are voidable even though their promises do amount to valuable consideration

– If minor doesn’t assert defense, he is deemed to have waived it

– If minor asserts the affirmative defense that he was under the age of legal consent on the day the K was formed, there is no recovery under the terms of that K by the adult


– But, if the minor has consumed the benefits of the K and those benefits are necessaries – food, clothing, shelter, medical attention – an exception is made to protect the interest of the adult who furnished the necessaries.

– P may recover in quasi K for the market value of the necessaries which the minor received under the K and has consumed


• Issue 2: Mental incapacity

– Renders voidable the K obligations of an individual who permanently or temporarily lacked the mental powers necessary in order to form a K

– If necessaries are the subject matter of the bargain w/ the person who is mentally incapacitated, apply same rule as Ks w/ minor. Recovery would be on a theory of quasi K for market value of the necessaries. If subject matter is n/ a necessary, there is no liability at all


–What about an individual who on normal days is fully possessed of mental faculties, but on the day the bargain was formed, had those faculties impaired b/c of some self-induced difficulty?


– One view: If mental incapacity is of a temporary nature and was self-induced by the party now claiming it, the defense cannot be raised

– Majority view: If other person knowingly dealt w/ a person who he should have known was suffering from the influence of alcohol or drugs, defense can be raised.

Content of the Bargain

• Centers on some serious social objection to content of bargain like illegality and unconscionability


• Illegality

– Time: If the subject matter or participation of one of the traders is declared illegal at a time when only the offer is outstanding, it is revoked by operation of law. If illegality is established subsequent to formation, but prior to performance, both parties are discharged on a theory of impossibility.


– UCC policy on substituted performance: If a K has been formed and is still executory and an intervening governmental regulation comes along (ban on religious gambling) declaring the subject matter or the participation of one of the parties to be illegal, then before the merchant can walk away from the agreement claiming objective impossibility, he must determine if some substitute arrangement could be made which is legal and practical.


– Assuming there is, then the merchant must offer to perform under modified substitute arrangement. The other party to the K is n/ obligated to accept that offer of modification. If he does, then the agreement has been modified in good faith. If he refuses, then merchant is able to avoid liability on the original terms of the K by claiming objective legal impossibility, so long as he makes accommodations to try and save the bargain.


–Nature of the illegality: Important b/c it will determine whether there can be quasi contractual relief


• Malum in se: If the SM of the bargain or the participation of one of the parties is intrinsically evil, then the attempted bargain is void.


• Example: Tony puts out a K on his brother-in-law w/ a $10K down payment to the hitman. The subject matter would be intrinsically evil. Any person who has reached the age of reason can detect the intrinsic wrongfulness merely by checking his conscience. There is no K. No ct. will assist Tony even if he attempts to withdraw from the transaction and recover $10K. Ct. house doors will be slammed shut in his face.


• Malum prohibitum: Subject matter is merely offensive to some regulatory statute that has been passed for the convenience of society. Wrong only b/c society has prohibited it. There is no K b/c the common law of Ks will never clash w/ criminal law.

• The party who rendered valuable services may well recover in quasi-K for the market value of those services if she was unaware that the subject matter was regulated and therefore offensive. Remember: If subject matter is MP, there is no recovery on the K!


• Whether there can be a recovery or adjustment between the parties in quasi-K depends upon whether they are in pari delicto – aware of fact that subject matter offends the law. If one of the parties is innocent (i.e. he is n/ in paridelicto), then he can recover in quasi-k.


• Status of member of a protected class: If bargain is merely mp, a person for whose protection or benefit the gov’t acted in defining the illegality will be permitted a quasi-contractual recovery of any performance rendered, notwithstanding his awareness of the illegality.


• Hypo: Paul, aged 14, takes a job w/ a local laundry. The bargain is a clear violation of the child labor laws of the state in which both parties reside. The laundry owner later fires Paul, owing him one week’s work. Paul is a member of a protected class. As a minor, it was for his protection that legislative restrictions on labor were created. Notwithstanding his being in pari delicto w/ his adult employer, Paul may recover the FMV of his services.


• Unconscionability

– One of the parties seeks to avail himself of a privilege which is contrary to public policy, informing the terms of a bargain

– A seller of an inherently dangerous article attempts to disclaim implied warranty of merchantability. If the content of the bargain sees one of the parties attempt to insert a term contrary to pubic policy, it is n/ illegal but it is unconscionable


– A reviewing court may do one of two things in response to an unconscionable term in a K: (1) deny relief altogether or (2) court can blue pencil the bargain to remove or modify the unconscionable term while enforcing the balance of the exchange against the parties. A ct. will exercise these inherent equitable powers to police against unconscionability if there is no other way to prevent oppression and surprise by the dominant party in a transaction.


– This is especially true where at the formation stage there was no real opportunity to bargain over the terms of K. Classic “David v. Goliath.” A dominant party made an adhesion K (take it or leave it proposition) which b/c of limited ability to satisfy oppressing need, the other party agreedto. If the terms of that resulting bargain offend public policy, it can be policed for unconscionability.

Society Takes Offense at Tactics Used by One of the Traders in Trying to Form Bargain

• Fraud

– Fraud in the factum: Any contrivance or artifice that prevents the fraud victim from appreciating that a K is even contemplated. Victim didn’t even know that a K was being contemplated. A real defense – there is noK.


– Fraud in the inducement: A personal defense. The victim is aware that a K has been contemplated but his consent to enter the K is induced by deceit or half-truths. Gives victim the opportunity to assert the personal defense and have his obligations voidable.


– Fraud in the execution: The victim is aware that a K is being formed and his consent is validly obtained. Fraud surfaces because the bargain is oral and victim trusts the other party to reduce their oral agreement to a formal written expression. Other party does and comes back and says, “here’s our deal, sign this paper.” Victim trustingly signs paper w/o closely examining it. Later on, it turns out that the party who prepared the writing suffered from selective hearing or convenient amnesia. Now, we have a V of fraud in the execution and that is a personal defense. The obligation expressed in the paper is voidable if V chooses to assert the defense


• Duress (two types)

–Duress of person

– Economic duress


– Duress of person• Mental or physical force directed against the

victim and they always render the consent of the V voidable (literally the offer you can’s refuse – “Your signature on the paper or your brains on the wall!”)

• Exertion of physical force, or–Ex. If you do n/ agree, you’ll never live to

see your 30th birthday.• Threats of duress are treated the same as

duress


– Economic duress

• One party must have some desperate pressing need for the subject matter,

• The other party – taking conscious advantage of that need – insists upon harsh and one-sided terms, and


• There is active wrongdoing on the part of the aggressor where she (1) creates the pressure which is driving the victim or (2) she actively meddles to make the pressure worse

• Elements: (1) Overwhelming pressure created by or exacerbated by (2) the aggressor coupled w/ (3) harsh term.


• Example: –You roar through San Fernando valley in

your car when it runs out of gas. Nearest gas station is “Mike’s Station” where gas is $1K/gallon. Container rents for $100/minute. You charge the transaction on your credit card.

–Do you have the defense of economic duress? No.

–Argument: “I was desperate. She drove harsh, one-sided terms.”


–Analysis: There is no economic distress b/c Mike didn’t create the plight that drove you to his station. There would be economic distress only if you stopped for a burger next door and while you were distracted, Mike drained your tank. If Mike is responsible for your circumstance, then economic distress exists.


• Procedural Unconscionability

– One of the parties at the formation stage uses formation tactics designed to deprive the other trader of a fair opportunity to appreciate the terms that she is objectively consenting to.


– This is the individual who does business in fine print or expresses the terms of the K in legalese and then takes the fine print document into an area of dealing w/ consumers who would never be able to notice the terms in which they’re waiving all the warranties. In other words, one party prevents the other party from having a fair opportunity to appreciate the terms of the bargain to which the latter appears to objectively be giving their consent.

Review of Two Major Issues of Contract Law

• Assume you have found an agreement

• You want to qualify that agreement as having about it the elements of legal enforceability. There are two ways:

– Is there a legally binding contract? or

– Promissory Estoppel

Existence of Legally-Binding Contract

• First, is there a bargain?– If there is a bargain, it is presumed to be an executory

K

• Second, if there is a bargain, what are the terms of this bargain on the day it was formed? Did each of the traders incur bargained for legal detriment?

• Third, look for defenses that would preclude formation (real defenses) or enforcement of the terms of the bargain (personal defenses)

Promissory Estoppel

• If there is no bargain at all, but merely a promise that has been breached which left the promisee worse off than on the day she received the promise, review the fact pattern for the elements of promissory estoppel.

Issue Spotting

• Hypo: Bob, a wealthy investor whose hobby consists of growing orchards, wants to help Mildred, his widowed daughter-in-law. Bob writes her the following signed letter: “If you will come to my estate and cultivate my orchards, you can have room, board, and $500/month until my death.” Mildred moves from her residence from another state to Bob’s estate where she tends to the orchards. One year later, Bob evicts Mildred and terminates monthly payments of $500 w/o reasonable provocation. Mildred files suit against Bob.

Issue Spotting

• This question raises two of the possible issues.

Issue Spotting

• Issue # 1: Is there an agreement? Is there an offer? There is no stipulation so you must search for it in fact pattern. Was the letter the offer of a bargain or a disguised gift? If Bob’s intention was to make a gift, there is noliability in K. But if he offered a bargain, there may be.

Issue Spotting

• Were there any obligations imposed by this arrangement on the other party? If there were and if they benefited Bob in a pragmatic sense, then that was the offer of a bargain. Mildred has duties under arrangement articulated by Bob – to tend to the orchards and by Bob’s own admission, “they’re too burdensome.” Bob benefits if Mildred does it. Many courts would construe this offer as a bargain.

Issue Spotting

• Issue # 2: Was the offer still alive at the time acceptance was attempted? If there was an offer to bargain, it was to bargain in the unilateral mode. Bob sought no promise from Mildred – he wanted an act. The only way to accept an offer in the unilateral mode is to complete the requested performance – i.e., to tend to the orchards until Bob dies. Bob is alive and kicking, indeed he kicked Mildred off his estate!

Issue Spotting

• There is a revocation problem with the offer while the offeree is merely attempting to accept. At the time Bob attempted to revoke the offer, Mildred had been working for 18 months. Surely she has made a substantialcommencement of the requested act that would cut off Bob’s power to revoke, so as to give her a reasonable opportunity to complete.

Issue Spotting

• Was the acceptance defective? No, Bob told Mildred what to do and she did it efficiently. She has been discharged w/o provocation. Is the agreement a K? Is there bargained for detriment on the part of Mildred? But for the attempted formation of the bargain w/ Bob, she had no legal obligation to leave her home in another state, relocate to Bob’s estate, and take up these duties.

• Any problems w/ defenses? No. Bob would be estopped from revoking the offer.

Issue Spotting

• Alternative rationale in PE:

– Did Bob make a promise? Yes.

– Did Bob’s promise have foreseeable consequence of inducing reliance on promisee’s part? Yes.

Issue Spotting

– Did it in fact induce reliance that was reasonable in dimension and w/in the realm of the foreseeable that Mildred would have to leave her home in order to take up the tending of the orchards? Yes.

– If Mildred can only recover in PE, she will n/ receive the expectation interest, only a sum of money sufficient to put her back in the position she was in on the day she received the letter. Any expenses or losses that she incurred in disposing of her home would be recoverable but that would be all.

Step 3

• Examine fact pattern and ask: “Do the terms of this K or the subsequent actions of either or both of the parties who formed it confer any rights or impose any duties upon non-traders?”

Step 3

• If conclude that traders have formed an agreement and you have qualified that agreement as having the legal status of a contractual relationship, ask: do the terms of that K or the subsequent conduct of either of the parties who formed it confer any rights or impose any duties upon non-traders

Step 3

• This issue deals w/ third party beneficiaries –persons whose rights are defined by terms of original K

• Assignees of rights and delegates of duties enter picture subsequent to formation of K in consequence of an action of one of the parties who formed it

Step 3

• A non-trader is any person who, at formation stage of agreement, was neither the offeror nor the offeree. Where the non-trader’s rights arise by the initial terms of the K, the relationship involved is that of a potential intended TPB.

Step 3

• But if the terms of the original K are silent w/ respect to any non-traders, but subsequent to the formation of that bargain, one of the traders takes the unilateral step of identifying a stranger and then seeks to transfer to that stranger the right to receive performance owed to the party by the other trader to the bargain, you have an attempted assignment of K rights.

Step 3

• Another possibility: The original K makes no reference to non-traders, but subsequent to the formation of the bargain, one of the traders takes the unilateral step of identifying a non-trader and seeks to make an arrangement w/ that non-trader under the terms of which the non-trader will assume the obligation to perform the duties owed by the trader to the other party under the terms of the K (delegation of K duties)

Summary of Steps for an Assignment

• Step 1: Is there a present assignment? Intent, suitable steps, suitable sm

• Step 2: If yes, is the assignment operative focusing on common law notion that you can n/ unilaterally use an assignment to materially alter the nature of duty or risks assumed by party in forming K. If the K provisions have been altered, determine whether they have succeeded in making assignment illicit or whether they have extinguished the power


• Step 3: Look to facts to see if there is revocation. This is appropriate when there is evidence that the assignor has changed her mind either by attempting to personally reacquire dominion over subject matter or by setting it up in rival subsequent assignees. In the latter case, identify which of the rival assignees possesses the prevailing claim


• Step 4: In the event that there is a present operative assignment, the right to that sm is exclusively in the province of the assignee. In the event that the obligor breaches by failing, refusing, or by defectively performing, the cause of action at law or in equity to cure the breach of K belongs to assignee.


• Obligor may raise any defense that could be asserted against the assignor had there never been an assignment. May be used to defeat liability on grounds that K was void or obligations voidable b/c since the assignee stands in shoes of assignor, she could never have rights greater than the assignor. Assignee is vulnerable to any counterclaim and to setoffs if they accrued priorto the date on which assignee made her presence and demand known to the obligor

Step 4

• Step 4: Once you have determined all of the persons who may have rights or duties on this K, have the performance obligations created by the K matured?

Step 4

• Fix a time and order for the performance of the promises which the parties have exchanged

• Law of conditions

• Once you have determined the identity of all persons – traders and nontraders – who might have rights or duties on a K ask: “Have the performance obligations created by the K matured?” This q requires fixing a schedule under which the performance should take place. This is accomplished by applying the law of conditions.

Step 5

• Step 5: If the K obligations have matured, has performance been excused? Canvass fact pattern for the potential presence of doctrine of excusable non-performance. – We have been speaking about excuse of

conditions. We are now speaking about excusable non-performance

– The refusal of a party to perform what is otherwise a fully matured K promise may be a matter of legal privilege if it has been discharged or excused on the theory of (1) impossibility, (2) impracticability, or (3) frustration of purpose

Step 5

• Excusable nonperformance can arise in three fact patterns

–Objective impossibility

–Commercial impracticability

– Frustration of purpose

Objective impossibility

• If, subsequent to the formation of the bargain, either physical or legal barriers arise so as to render the obligor’s promised performance objectively impossible, such an obligor is excused by operation of law


• Critical factor: Performance must be objectively impossible. Means that given the circumstances as they have changed subsequent to formation of the bargain, n/ only must the pr/or be unable to perform, but there must be no person on the face of the earth who could carry out the terms of the pr/or’s obligation.


• If the only consequence of the after arising barriers are that pr/or cannot perform, though another person w/ greater capacity could, that is called “subjective impossibility” and is no excuse at all


• Example of an obligation which has become objectively impossible: Suppose Fox has agreed to paint the inside of Brown’s house and midway through the work, w/o fault of either party, Brown’s house is destroyed by fire. This destruction would discharge Fox’s obligation to complete the painting. N/ only could Fox n/ paint what is now a pile of ruble, but there is no one on the face of the earth that could give a pile of ashes a coat of paint.


• If it’s impossible, it can’t be done

Commercial Impracticability

• If essence of objective impossibility is physics and the barriers that physics present, commercial impracticability has as its essence economics


• Something is impracticable when it cannot be accomplished except by an expenditure of funds grossly disproportionate to the agreed-upon stage. Party is not claiming that, “I can’t do it.” Instead, the party is claiming that, “To do it would cost me so much more than either you or I anticipated at the formation date that it is unfair to hold me to my promise.”


• To claim an excuse based on commercial impracticability, a party must show that the factors that arose subsequent to formation were not foreseen by either party at the formation stage.


• UCC makes more readily available the doctrine of excuse premised on CI. It is sufficient if:

– I can prove that at the formation stage neither you nor I anticipated these after-arising factors, and

– Show that these after-arising circumstances have thrust upon me costs which are wholly disproportionate to what we had assumed


• Then I am legally privileged n/ to perform


• If it’s impracticable, it now costs too much to do it

Frustration of Purpose

• Does n/ involve a claim that performance is physically impossible or legally impossible or economically impracticable

• Subsequent to formation of bargain, circumstances have so drastically changed that your performance is no longer of any value or utility to the other party. The other party asks to be excused from having to perform his promise to you on the grounds of “frustration.”

Frustration of Purpose

• If it’s frustrated, it’s no longer worth the original cost

Step 6

• Step 6: Breach and its remedial consequences. If performance obligations created by K have matured and they have n/ been excused and factually they have n/ been performed, you are in the presence of breach

Step 6

• A party to a K which had a fully matured obligation has either:

– Failed to perform,

–Refused to perform, or

–Defectively performed

Step 6

• In the face of breach, there are two critical things to be on the lookout for:

– Affirmative obligations of the aggrieved parties: Faced w/ a breach of the K, determine what the impact of that breach is upon the affirmative duties of the aggrieved party

– Everyone instinctively rushes to this point: Remedies (remedial rights that accrue to aggrieved party)