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Outline Contracts Gulati Copy Outline

Law Outlines > Contracts (Duke Gulati) Outlines

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Contents

1. Overview of Contracts.......................................................................................... 4

1.1 Contract defined............................................................................................ 4

1.2 Risk allocation................................................................................................ 5

FORMATION................................................................................................................ 6

2. 3.

4. Consideration....................................................................................................... 6

2.1 Consideration defined.................................................................................... 6

2.2 Gift or gratuitous promises............................................................................ 7

2.3 Adequacy of consideration............................................................................. 8

2.4 Promisee unaware.......................................................................................... 8

2.5 Past consideration.......................................................................................... 8

2.6 Material benefit rule (Exception to past consideration).................................9

2.7 Other motives not bargained for....................................................................9

2.8 Pre-existing duty rule..................................................................................... 9

2.9 Settlement of claims.................................................................................... 10

Promissory Estoppel........................................................................................... 11

3.1 Promissory Estoppel defined........................................................................11

3.2 Amount of damage...................................................................................... 11

3.3 Applications................................................................................................. 12

Offer and acceptance......................................................................................... 12

4.1 Mutual assent defined..................................................................................12

4.2 Offer defined: FORK: invitation to negotiation.............................................13

4.3 Validity of particular kinds of offers.............................................................14

4.4 Expiry of offer.............................................................................................. 15

4.4.1

Rejection................................................................................................ 15

4.4.2

Counteroffer.......................................................................................... 15

4.4.3

Lapse of time......................................................................................... 16

4.4.4

Revocation of offers............................................................................... 16

4.4.5

Death or Incapacity............................................................................... 18

4.5 Acceptance.................................................................................................. 19

4.5.1

Method of acceptance........................................................................... 19

4.5.2

Mailbox rule........................................................................................... 21 1

4.5.3

Silence or Dominion...............................................................................22

4.5.4

Additional and Different terms...............................................................22

4.6 Indefinite terms FORK..................................................................................25

4.7 Internet: terms on box FORK.......................................................................26

5. Output, requirement and exclusive contract......................................................27

DEFENSES TO FORMATION....................................................................................... 27

6. Unconscionability............................................................................................... 27

7. Statute of Frauds................................................................................................ 29

7.1 Suretyship.................................................................................................... 29

7.2 Marriage....................................................................................................... 29

7.3 Land Contract.............................................................................................. 30

7.4 One-year...................................................................................................... 30

7.5 UCC >$500.................................................................................................. 32

7.6 Memorandum............................................................................................... 32

7.7 Exceptions and solutions............................................................................. 33

7.8 Oral modification......................................................................................... 34

8. Immorality.......................................................................................................... 34

9. Mutual mistake................................................................................................... 34

10. Misrepresentation........................................................................................... 35

INTERPRETATION...................................................................................................... 36

11. Parol Evidence - term identification................................................................36

12. Interpretation.................................................................................................. 37

PERFORMANCE AND DISCHARGE..............................................................................38

13. Substantial performance.................................................................................38

14. Modification.................................................................................................... 39

15. Impossibility/ Impractibility/ Frustration..........................................................39

DAMAGES................................................................................................................. 40

16. Damages......................................................................................................... 40

17. Specific performance...................................................................................... 41

18. Limitations on compensation..........................................................................42

19. Miscellaneous.................................................................................................. 43

19.1 Sovereignty Debt and Unconscionability.....................................................43

19.2 Exit consents............................................................................................... 44 2

19.3 Contract terms............................................................................................. 46

19.4 Fiduciary duty.............................................................................................. 46

19.5 Boilerplate................................................................................................... 46

1. Overview of Contracts

1.1 Contract defined I.

II. III.

IV. A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Sorting function: contract is about the coercive power of the state, which is used only on some occasions a. Selling exams: not enforceable, exam is the property of the school, violates honor code, unenforceable because of illegality b. Cutting off finger in exchange for tickets: no contract, power of state has restrictions, illegal c. Kidney exchanges: allowed as contract (exception to the rule above) i. Why is it legal?

1. Safe life

2. Prevent black market ii. Damages for breach of kidney exchange (there is an incentive to back out if operation not done simultaneously): monetary damages probably not enough:

1. That equates putting a price for kidney, purchase of kidney

2. Difficult to enforce, esp. for poor people iii. Possible other solution:

1. social pressure (newspaper)

2. a donor-patient pair makes a donation to someone waiting for a cadaver kidney, in return for the patient in the pair receiving high priority for a compatible cadaver kidney when one becomes available Gap filling function: set default rules a. How many onions in the turkey burger? Decided by industry standard, or by what a reasonable person may expect. b. Custom: in the industry it's normal to contract around consequential damages. Relevant fact?
c. Default rule v. industry standard Three kinds of contract (Bailey v. West): 3

V. VI.

VII. VIII. IX. X.

a. Express contract b. Implied in fact contract: an implied contract can be formed where it is clear that both parties consented to perform albeit without saying anything. It can be shown by a course of dealing or a general custom or pattern of commercial activity. There must be mutual intent by both parties in order to form a contract "implied in fact." Both parties must be clear on with whom they are contracting with. c. Implied in law contract: i. A quasi contract is not a contract ii. A quasi contract can recover if:

1. a benefit is conferred by the P

2. the benefit is appreciated and accepted by the D

3. the retention of the benefit would unjustly enrich the defendant. iii. not formed where performance rendered by one person is not requested by the other. iv. Last clear chance: If D has the last clear chance to refuse P's work, but does not refuse, there may be a quasi-contract. Rationale: the recipient of benefit, D is in the best position to prevent the mistake or error that led to the conferral of the benefit. v. Restitution view: replicate the result of the bargain that would have occurred absent the transaction cost (lack of information) In exam, don't spend too much time to decide if there is a contract, because usually there is. Which law to apply: predominant purpose test a. UCC if the predominant purpose is to sell goods (not lease, not service, not intangible rights or real property) i. SS1-103(b) general principles of common law apply to sales of goods unless displaced by the provisions of UCC b. Common law if the predominant purpose of the contract is to sell services. Unenforceable contract: contracts that have some legal consequences, but they are not enforceable in an action for damages or specific performance, due to a defense (e.g. Statute of Frauds; Statute of Limitations) Void contracts: no contract has been formed Voidable contracts: one or more parties have the power to either ratify the contract or void the contract. "voidable by sb" Executor contract: if either one party hasn't performed fully, it's an executor contract.

1.2 Risk allocation I.

"If a man bind himself by a positive, express contract to do an act in itself possible, he must perform his engagement unless prevented by the act of 4

II.

III. IV.

V. God, the law, or the other party to the contract"...no difficulty short of absolute impossibility shall prevent him from performing. (Stees) Spearin doctrine: If the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible of the consequences of defects in the plans and specifications. FORK in fact a. Design specifications: indicate in precise detail the manner in which the work is to be performed, subject to Spearin doctrine. b. Performance specifications: merely specifies the ultimate goal. c. Express warranty that work would be free from defects trumps implied Spearin warranty. Allocate risks explicitly to: a. Protect against potentially opportunistic behavior b. Protect against unforeseen contingencies c. Serve as incentives to motivate or constrain certain types of behavior Ways of allocating risk when they weren't expressly allocated: a. Cardozo: intention not otherwise revealed may be presumed to hold in contemplation the reasonable and the probable b. Assign the risk to the party who i. best appreciates the magnitude of the risk, ii. can more cheaply take cost-effective precautions against its occurrence, or iii. can purchase insurance to cover the contingency should it occur Principles: theory of default rules a. Hypothetical bargain: where you try to imagine what the bargains parties would have wanted absent transaction costs. What would reasonable actors under the circumstances would have wanted the terms to be. Use the cheapest cost avoider. Only works if parties are in equal bargaining positions. b. Information forcing: if you have a party who has idiosyncratic preferences, this party won't win unless clearly tell the other side the preferences (forcing the party to tell the information)

FORMATION

2. Consideration

2.1 Consideration defined I.

R2d SS71 (1) To constitute consideration, a performance or a return promise must be bargained for. 5

II.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. Fuller's Three Functions of Consideration a. evidentiary function - evidence that an agreement or promise exists when that existence is in dispute b. cautionary or deterrent function - helps ensure that a hasty, unreasonable promise, will not be enforced to the disadvantage of the promisor c. provides a legal framework to express intention

2.2 Gift or gratuitous promises I. II.

III. IV.

V. Gratuitous promises: promises to make gifts have no consideration, esp. intra-familial gift (no "bargain" element); Existence of condition to receive gift: Even if the person promising to make a gift requires the promisee to meet certain conditions in order to receive the gift, there will still be no consideration if the meeting of the conditions is not really "bargained for" by the promisor. (I'll give you this book if you come up to my office) a. Occurrence of condition is of benefit to promisor: But if the promisor imposes a condition, and the occurrence of this condition is of benefit to him, then the bargain element probably will be present. Condition to use a donation in a certain way FORK a. No consideration: the promisee's promise to use the fund is not a legal detriment because at the time of the promise, the donor has not handed over the money, and the promisee has no legal right to use the money yet. Therefore there is no forbearance at the time the promise is made. b. Consideration: committing the use of fund only for the express purpose required by the donor. Policy argument of public interest. Altruistic pleasure not sufficient: the fact that one who promises to make a gift expects to derive altruistic pleasure, or love and affection, from making the gift is not sufficient to constitute a "bargain." E.g. Aunt promises to help A pay music school. A is so excited that she says to aunt "when I am famous I'll give you the front row seat of my conference." a. Aunt's promise is gratuitous gift. b. It's not clear that A's promise is serious promise at all. It could be just an expression of gratitude. 6

c. Also it's contingent upon a very uncertain future event, seems revocable at the will of A. d. Significant discrepancy between tuition and ticket. e. Besides, it is given after Aunt makes the promise, so it's not bargained for.

2.3 Adequacy of consideration I. II.

III. IV.

"Adequacy" irrelevant: If the consideration is big enough to suggest that there was a bargain, the fact that it is "inadequate" is irrelevant. R2d SS79 If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged; or (c) "mutuality of obligation." Unfair bargain: But remember that extreme disparity in value between what the promisee gives up and receives may suggest that there is not in fact a "bargain," in which case there will be no consideration even though the detriment requirement is satisfied. There could be unconscionability. Sham and nominal consideration: Even though a deal looks on its face as if it is supported by consideration, the court may conclude that the purported consideration is sham or nominal, and is thus not consideration at all. a. Sham: falsely reciting that promise gives consideration. E.g. payment not in fact made: If a non-trivial payment is recited, but the payment was not in fact made, most courts will take this as evidence that no bargain was present. Always, the question is whether there was in fact a bargain, and payment or non-payment is merely nondispositive evidence of whether there was a bargain. b. Nominal: promisee suffers only nominal detriment. E.g. 1 dollar consideration

2.4 Promisee unaware I.

II. Promisee unaware: Generally, the promisee must be aware of the promise, for the act performed by him to be consideration for the promise. This means that if a reward is promised for a certain act, and the act is performed without the actor's being aware of the reward, he cannot recover. One can recover a reward, where his acts were performed with knowledge of the offer of a reward, but were motivated by other circumstances (Williams: beaten up by husband, motives were irrelevant).

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