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Contracts Outline

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This is an extract of our Contracts document, which we sell as part of our Contracts Outlines collection written by the top tier of Seton Hall Law School students.

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Contracts Outline
What would an objectively reasonable person impute as the intent of the offeror and offeree?
How do you analyze the facts in light of the rules?
Words and conduct must be interpreted in all the relevant circumstances to determine if a promise has been made.
Argue both sides! Need to have some sense of the outcome.
Go through issue-by-issue rather than one side then the other.

1. Contract law provides a framework within which parties can carry out a mutually beneficial exchange of goods and services.
Parties expect to be better off as a consequence of the exchange.

2. There are a number of possible "trading points" at which an exchange will be beneficial to both. Contract law enables us to:
a. Identify the culminating moment of agreement from all bargaining activity, and b. Protect the agreement from any effort by either party to restart the bargaining process.

3. Contract law is economic in its purpose because it deals with economic exchanges.

1. Certainty and consistency; a mechanical process.
a. Selecting the right rule from the body of doctrine and applying it to the facts.
b. Formalistic and rigid due to emphasis on clear rules and mechanical process.

2. Free enterprise, private autonomy, laissez-faire approaches to economic activity

3. Strictly objective approach to contractual relationships

1. Multidisciplinary approach: various schools of thought factoring makeup and philosophy of the judiciary, the use of legal tactics, the social goals to be achieved, etc.
a. Legal realism - dynamics of the legal process b. Sociological jurisprudents - relationship between law and society c. Law and Economics movement - facilitation of exchanges on the free market

2. Need flexible rules that accommodate and appropriately reflect the legal process.
a. Did the parties intend to make an offer and acceptance?
b. Does the court have a reasonably certain basis to determine the meaning of the terms of the contract (the existence of a breach and the scope of a remedy)?
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1. Contracts are generally governed by common law, except to the extent that legislation has codified, changed, or added to it.

2. Common law is state law.

1. The UCC as a Uniform Model Statute and State Legislation a. Model code covering only certain specific types of commercial transactions, with each type provided for in a separate article of the UCC.

i. e.g., Article I (general provisions), Article II (sale of goods)
b. Codifies well-established rules as well as clarifies and modernizes the law (bring the legal rules into line with contemporary commercial practice).
c. Unifies commercial law through the country (since commercial law is state law).

i. Congress has power over interstate commerce, but it cannot enact a single commercial statute with nationwide application.
d. Enacted in every state (except Louisiana) with and without variations.

i. However, courts in different states can reach divergent interpretations of the code provisions.
ii. Half of the states have enacted the 2001 revision of Article 1, while the other half uses the old version.
e. Courts often rely on the Official Comments on interpreting the Code.

2. The Use and Application of UCC Article II
a. With respect to the sale of goods, UCC picks up wherever it differs from the general rules of the common law.
However, common law rules and principles can supplement the provisions of the code unless displaced by particular code provisions. And in areas where the UCC is silent, the common law fills the gap. [UCC § 1-103]

i. Hybrid transactions: if the dispute is divided between goods and services 1) Most courts use the "predominant factor" test to decide which component is predominant. If sale of goods, then UCC. If provision of services, then common law.
2) Some courts use the "gravamen" test. Apply UCC to goods component and common law to services component. [Criticism: goes against the goal of the UCC which is to simplify and clarify the law relating to commercial transactions]
b. Hypo: what qualifies as a "sale of goods" under UCC § 2-105?

i. Sale of a condominium 1) No. A condo is not "goods" but real property. The concept of movability distinguishes tangible personal property from land and structures on land that are "united" with it.
ii. Contract to employ someone as a sales clerk in a department store 1) No. The contract to employ sales clerk is not for the sale of goods, but for labor (services)
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Sale of a cow 1) Yes. Livestock and crops are included within § 2-105.

iv. Sale of Michelangelo's David 1) Yes. Although large and heavy, David can be moved with effort and thus is a good.

v. Contract for sculptor to make a marble copy of David for $10,000 1) Yes. The end product to be delivered under the contract (copy of David) is the object of the transaction. Thus, the sculptor's labor is entirely used in creating the copy of David (a tangible,
movable end product) which is sold.

vi. Sale of food in a restaurant 1) Hybrid: sale of food + provision of services (serving it and providing a table, silverware, etc.)
a) "Predominant purpose" test: could depend on the issue - e.g., food poisoning - if food caused the injury, Article II could apply to the claim.
b) "Gravamen" test: apply UCC to food and common law to services.

1. Secondary authority setting out the rules of the common law of contract. Attempts to give coherent form to American contract doctrine. Influenced by the UCC.

2. Offers guidance by its drafters on how the direction the law should take.

3. Frequently cited and relied on by courts, but does not necessarily reflect what courts of a particular jurisdiction have actually held.

1. There is a legal requirement that the parties show their intentional actually to be bound by the terms of their agreement.
K2d § 17 refers to this as the "manifestation of mutual assent."
a. The objective test of manifestation of assent is used to determine whether or not a person agreed to a contract or specific contractual terms.

i. Assent can be manifested by a written document, an oral agreement, or commencement of the performance.
ii. If you behave as if the contract is intended and desired, then the conduct is binding (except for trickery,
coercion, dishonesty, etc.)
b. K2d § 2: manifestation of intent by promisor to act or refrain from acting in a specified way which justifies the promisee in understanding that a commitment has been made.
c. K2d §§ 19 and 20: holds a party liable for deliberate manifestations by words or conduct, made with reason "reason to know' that they will create a reasonable impression of assent iii.

3 Contracts Outline d. Observable signs of agreement: signature on writing, spoken words, behavior relevant to the transaction, etc.

2. Manifestations of assent are interpreted from the standpoint of an objectively reasonable person in the position of the party to whom the manifestation was made.

i. Complication: joke contracts - what do we do when a promisor's joke is taken seriously by the promisee?
1) Lucy v. Zehmer (sale of land which defendant claimed was made in drunken jest)
2) Leonard v. PepsiCo (collect enough Pepsi Points and get a Harrier jet)
ii. Complication: parties clearly manifest assent but each has a different object in mind (Peerless case - seller had in mind the December ship, buyer had in mind the October ship)
1) Ray v. William G. Eurice & Bros., Inc. (doesn't matter if Eurice Brothers misunderstood the contract.
What matters is the objective manifestation of intent.).

iii. Postponed bargaining: the agreement to agree 1) Walker v. Keith a) Walker leased a small lot to Keith for a 10 year term at $100/month. Keith was given the option to extend the lease for another 10 years under the same terms except the rental price, which was reserved for future agreement ("agree to agree"). Keith gave notice to renew, but neither could agree on the rental price.
b) Walker: national business conditions and local business conditions are opposing - which condition applies for determining rental price?
c) Keith: local comparative business conditions are easily determined with certainty.
d) Holding: Kentucky court took a classical approach. The parties cannot "agree to agree" because
K2d § 33 requires reasonable certainty on all terms.
a. K2d § 33(3): one or more terms left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or an acceptance.

1. Why do we care about identifying "offer" and "acceptance"?
a. The question of whether an "offer" has been made that the law will recognize, and if so whether it has been
"accepted," becomes the subject of dispute. The reason often is that a party has changed his/her mind. Because a promise is only enforceable if there has been an "offer" and an "acceptance" in legal terms, a way to escape this legal obligation is to argue that the alleged transaction is lacking in either or both of those elements. The problem then is to determine whether the withdrawing party had gone so far, by word or deed, as to create an irreversible undertaking.

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Raises questions about which party acted first, what was meant or understood by the words used or actions taken, etc.

2. When is a communication an offer and when is it an invitation to engage in bargaining and negotiation?
a. Example: "I hereby offer to sell you Manderley for $10,000 cash" v. "I am eager to sell Manderley but would not take less than $10,000 for it. Please let me know promptly if you are interested."
b. Analysis: The surrounding circumstances are what really matter. Had the two parties engaged in months of bargaining then it might well be taken as an offer or had there been no prior dealings then the words might mean the seller is looking for the highest bidder (absent prior negotiations, a court might take it to be an advertisement and not an offer).

3. In dealings between merchants it may be assumed that familiarity with trade custom and practice reduces points of disputes
(e.g.., Romberg's exam with mall retailer and owner - occupies in trade practice means open for business).

4. Creation of contract can be marked by the signing of a written memorial of the agreement.
a. "Signing a contract" is inaccurate terminology. A contract is a legal relationship between the parties. The document that is signed is actually the record/memorial of the contract.

5. Sometimes parties form a contract without recording it in a formal comprehensive writing. In this instance, the rules of offer and acceptance provide a framework for resoling questions over whether a contract was formed at all and, if so, what are its terms.

6. When do we apply offer and acceptance rules?
a. Determining whether a contract was formed b. Determining which communication constituted the offer and which was the acceptance c. Determining choice of law and jurisdiction if the parties live in different jurisdictions and communicate across state lines

1. Offer creates a power of acceptance in the offeree who can then a. (1) accept on the proposed terms, OR
b. (2) reject either expressly or by not accepting it within a particular time (offer lapses, no contract arises), OR
c. (3) counter-offer (terminates original offer and reverses the process: original offeror becomes the offeree with the power of acceptance)

1. Offer defined [K2d § 24]
a. Manifestation of willingness to be bound. Creates a power of acceptance for offeree.

2. Offer must contain these elements expressly or implicitly.
a. (1) Offer must be communicated to the person to whom it is addressed.

i. 5 Contracts Outline b. (2) Offer must indicate a desire to enter into a contract. Offeror must specify the performances to be exchanged and the terms that will govern the relationship.
c. (3) Offer must be directed at some person or group of persons.

i. Raises questions of interpretation if it concerns multiple acceptances or may be accepted only by the first person to reply.
d. (4) Offer must invite acceptance.
e. (5) Offer must create the reasonable understanding that upon acceptance, it will arise without any further approval being required from the offeror.

i. Distinguishes an offer from a solicitation or a request for information that may lead to an offer.
ii. If the offeror reserves the final say on whether to be bound, then it is not an offer - it is preliminary communication or negotiation

3. Offer v. solicitation or preliminary proposal a. When intent is not clearly expressed, the communication must be interpreted objectively. The question becomes whether, taking into account the entire context of the communication, the addressee was justified in understanding that the offeror intended to be bound on acceptance.

i. Factors for distinguishing an offer from a preliminary proposal can include 1) (1) Words used in the communication 2) (2) Communication that omits significant terms 3) (3) Relationship of the parties - prior dealings between the parties and prior communications in this transaction. [e.g., a buyer's failure to insist on confirmations in earlier sales is persuasive evidence supporting the interpretation that the confirmation was not intended as an exclusive mode of acceptance.]
4) (4) Common practices or trade usages [think Sam Sells and mall landlord re: "occupancy"]
b. Retail and newspaper advertisements [K2d §§ 26, 29]

i. Few advertisements are intended to give members of the public the power to bind the advertiser simply by responding to the advertisement. However, if an advertiser uses language that reasonably indicates a willingness to give potential customers the last word on forming a contract, it could be bound immediately upon the customer's response.
1) Indicators of intent: language, commercial practice, terms of advertisement (clear, definite, explicit,
nothing left open for negotiation), number of powers of acceptance, etc.
a) Leonard v. PepsiCo b) Walker v. Keith 6 Contracts Outline c) Lonergan v. Scolnick (The language used by the seller in his letters disclosed that they were not intended as an expression of fixed purpose to make a definite offer).
2) A reasonably objective person would realize the seller is not able to accept multiple acceptances a) Exceptions a. "First-come, first-serve" determines number of acceptances b. Easily mass-produced item(s)
c. One-per-person limit d. Sign in shop window which easily can be removed and the sign is specific to that store e. Bait-and-switch i. Izadi v. Machado (Gus) Ford, Inc. (Power of acceptance can be generated if an objectively reasonable person would not believe that an ad would have to be specific to the point that no additional clarifying terms are needed. K2d § 25 and cmt. c.).
c. Price quotes i.
Generally not offers. The buyer assumes the role of offeror.

1. Specified v. Reasonable Duration of Offer a. An offer has a limited duration and, if the offeror does not state the duration of the offer, lapses if not accepted within
"a reasonable time." [K2d § 41]
b. What is "a reasonable time"? Fact-finder can look at circumstances. [K2d § 41 cmt. b]

i. The amount of time needed to receive, consider, and reply to the offer?
ii. Are the parties in each other's presence or are they communicating at a distance via mail or other means?

iii. Nature of the transaction?

iv. Relationship of the parties?

v. Common practices or trade usage?

vi. Stability of the market?
c. Even if the offeror states a time for acceptance, there can be ambiguity i.
Compare: "offer requires acceptance by 5pm PDT on Friday, December 18, 2009" v. "offer requires acceptance within 5 days"
1) Former: clear time as to when power of acceptance ends 2) Latter: does not indicate if the five-day period starts from the date of the writing or the receipt of the offer, or whether the offer includes only business days or weekends too 7

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