Contracts Outline

Conceptual Frame Work

• Intent to Contract – Who is the Offeror? – What is the operative Offer? – Who is the Offeree? – Was there a timely effective Acceptance? • Mutual Assent – Did each party understand what the other intended? – Did each assent to the same terms? • Was Assent compromised (Policing Doctrines) • What terms does the Contract include? • What do the contract terms mean? • Did the parties perform as required? • If not, is there an unmet condition or an excuse of performance? • If not, what are the damages?

I. Intent to Contract

• Intent to Contract – Who is the Offeror? – What is the operative Offer? – Who is the Offeree? – Was there a timely effective Acceptance? • Qualified/Conditional Acceptance - • Mail Box Rule (Bargaining at a distance) - • Face to Face Meetings –

II. Was there Mutual Assent

An agreement or mutual assent is of course essential to a valid contract (Lucy). Both Parties appear to: - intend to contract - agree to the same material terms (and their intended meaning) at the time.

• Mutual Assent (Common Law) – Did each party understand what the other intended? • In re: Peerless • Restatement 20 • Note distinction between failure of Mutual Assent (Peerless) and Mutual Mistake (Sherwood).

III. Common Law offer and Acceptance – Under the mirror image rule, an Offeree’s acceptance is constrained in a number of ways. • has to be definite & unequivocal • must be provided in the manner specified by the offeror • if specified as exclusive, all other forms of acceptance are precluded even if reasonable. • If proffered by performance rather than a return promise, its effective acceptance if completed in time allowed for accepting offer. • If proffered via part performance in accord with terms of offer is sufficient to establish the contract

***And, in case of doubt (ambiguity usually caused by the Offeror’s failure to be specific) an offer is interpreted as inviting acceptance via promise or performance as Offeree chooses…(R2nd of Contracts §32)***

A. Was assent Compromised?

• Policing Doctrines In Context – 2 Types of Policing Doctrines, those addressing: • 1.) The Existence and Quality of Assent • 2.) The Substantive Terms of Exchange • The Freedom to Contract is compromised by undermining assent. The policing doctrines seek to address this problem.

• Policing Doctrines: – Duress – Innocent Misrepresentation – Fraudulent Misrepresentation – Negligent Misrepresentation – Unconscionability • Common Law • UCC

B. Parol Evidence

Was the contract integrated?

• 1. Integrated? - Intended to be final &/or complete expression? • 2. Partially integrated? - Final, not Complete: supplemental but non contradictory evidence is allowed. • 3. Fully integrated? - Final & Complete: no evidence allowed • When may extrinsic evidence of a prior or contemporaneous term be allowed despite the term’s omission from the written (partially or fully integrated) contract? • When may extrinsic evidence of the agreed upon meaning of a term be allowed despite the existence of an integrated contract? (ambiguity exception) – Interpretation: Once we know which terms are to be included, how do we determine what the terms mean? – Conditions – Good Faith

Effectuate the intent of the parties at the time of contract formation via: – Examination of Contract Language; if it is clear on its face, ascertain parties’ intent from the contract language. – Language is interpreted consistent with its Ordinary Meaning. – A Contract will be Construed as a Whole…all parts harmonized so far as reasonably possible.

• Where an Ambiguity is alleged, it may be one of two types: • Patent – ambiguity apparent upon the face of the instrument due to inconsistency, obscurity or inherent uncertainty of language used (ex. “chicken”); or • Latent – clear and intelligible contract language suggesting a single meaning but extrinsic fact or extraneous evidence suggests more than one possible meaning (ex. “dozen” different meaning in bakery business).

• To determine whether a latent ambiguity exists: – 1st Examine extrinsic evidence to determine if evidence supports the assertion that language is capable of more than one interpretation. – 2nd If latent ambiguity discovered, examine extrinsic evidence to determine meaning (appropriate interpretation) of contract language.

C. Application of Rule

• Mitchill, Williston – the conservative rule: • In Mitchill the court states that evidence of the oral contract may not be admitted unless three conditions exist. • The oral agreement must: – Be collateral in form… – Not contradict express or implied provisions of the written agreement – Be one that the parties would not be expected to have reduced to writing – (not be so clearly connected with the written agreement that it should be reasonably expected to be included).

• Consider Corbin (Modern Trend): – Writing can’t prove its own accuracy and completeness. – Parol evidence rule doesn’t apply until it is determined that a written agreement is integrated. – A written agreement cannot be determined to be integrated without resort to extrinsic evidence of adoption and assent. – Note accord in Rest. 2nd §210, comment b “a writing cannot of itself prove its own completeness

A. Revocation

• Despite an Offeree’s intent to accept, an offer may still be terminated or revoked by: – Offeree’s inadvertent rejection via an unqualified counter-offer; – Offeree’s untimely acceptance; – Offeree’s failure to accept within a reasonable time (if no time for acceptance is specified); – Offeror’s revocation prior to Offeree’s acceptance.

B. Burden on Offeror’s Revocation

• The Offeror’s power to revoke can be constrained by: – An option bargained for in exchange for consideration.

***OPTION CONTRACT***

IV. Gap Fillers

The issue isn’t incompleteness or inaccuracy of the contract or the ambiguity or vagueness of a term in the contract, its the absence of a term that neither party contemplated at time of contract…

V. Performance? Did the parties perform as required? Order of Performance: a. Which party performs first, which one second, etc.? Quality of Performance: b. What standards must each party’s performance meet? • When faced with gaps in the contract regarding the order of performance or the quality of performance, Courts fill the gap by resort to: – a.) contract language; – b.) surrounding circumstances; – c.) general trade or custom; or – d.) by devising a general rule of law

A. Condition v. Promise?

• Conditions - An operative fact occurring after acceptance but before discharge of obligations upon which the rights and duties of the parties depend. Made by agreement of both parties to qualify start of contract obligations. Postpones a duty or other relationship. Non Occurrence prevents discharge of obligations. • Promise - A declaration made as part of contract formation that one party will or will not do something, fulfillment of which occurs after acceptance. Made by one party to create an obligation or detriment in the Promisor. Discharges a duty when fulfilled. Non-Fulfillment constitutes breach with right to damages.

Restatement section 225: • (1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused. • (2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur. • (3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.

Restatement 2nd Secontion 229:

“Excuse non-occurrence of express condition where non-excuse works disproportionate forfeiture unless occurrence is material.”

B. Excusing Performance of express conditions

• Avoidance via active frustration of condition is not allowed. • Failure to meet an unqualified express condition will not be excused. • However, an express condition may be waived by subsequent course of conduct. • The failure to meet a condition may be excused if Obligee would suffer a forfeiture and there is no detriment to the Obligor from non-enforcement of condition.

C. Material Breach

• Rest. Of Contracts, §275: Factors establishing materiality – Extent to which injured party receives the anticipated substantial benefit – Extent to which injured party may be compensated in damages for lack of complete performance – Extent of partial performance and/or preparations to perform – Greater or less hardship on non-performing party in terminating contract – Willful, negligent or innocent behavior of non-performing party Greater or less uncertainty that non performing party will perform remainder of contract

Restatement Section 237 effect n other party’s duties of a failure to render full performance:

• A material failure of performance has, these effects on the other party's remaining duties of performance. – prevents performance of those duties from becoming due, at least temporarily, and – discharges those duties if it has not been cured during the time in which performance can occur. • The occurrence of conditions of the type dealt with in this Section is required out of a sense of fairness rather than as a result of the agreement of the parties.

Section 241 circumstances significant in determining whether a failure is material: • In determining whether a failure to render or to offer performance is material, the following circumstances are significant: • (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; • (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; • (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; • (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; • (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

VI. Severable?

• Contract is severable when it consists of: – several & distinct items; and – consideration is apportioned to each item based on its value as a separate unit rather than part of whole...

• To determine divisibility, examine: – Parties’ intent disclosed by language of agreement, – manner of performance, – method of payment, – circumstances surrounding contract execution & operation. VII. Repudiation section 250

• A repudiation is – (a) a statement by the Obligor to the Obligee indicating that the Obligor will commit a breach that would of itself give the Obligee a claim for damages for total breach under § 243, or – (b) a voluntary affirmative act which renders the Obligor unable or apparently unable to perform without such a breach. • Comment b. Nature of statement. • In order to constitute a repudiation, a party's language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. Mere expression of doubt as to his willingness or ability to perform is not enough to constitute a repudiation, although such an expression may give an obligee reasonable grounds to believe that the obligor will commit a serious breach and may ultimately result in a repudiation under the rule stated in § 251. However, language that under a fair reading "amounts to a statement of intention not to perform except on conditions which go beyond the contract" constitutes a repudiation.

VIII. UCC Formation of Contract in General 2-204

• (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. • (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. • (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

IX. Limit on Power to Revoke 2-205

• UCC 2-205 [firm offer] • Where there is an agreement for the sale of goods, a signed, written offer which assures it will be held open, is not revocable for lack of consideration during the stated or if unstated, reasonable time period. • An offer by a Merchant [to buy or sell] in a signed writing which states that it will be held open is not revocable for lack of consideration during the stated period or a reasonable time period [3 months].

X. UCC Offer and Acceptance in Formation of Contract 2-206 (1) Unless otherwise unambiguously indicated by the language or circumstances: – (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; – (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non- conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

XI. Conflicting Forms? 2-207

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

 (a) the offer expressly limits acceptance to the terms of the offer;  (b) they materially alter it; or  (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. ***Contra the Mirror Image Rule, 2-207 establishes a presumption that parties intended to contract (consistent with 2-204)*** • 1. Is there a contract based on the Parties Communications? • 2. If there is, what are it’s terms? • 3. If there are mutually exclusive terms, is there a contract formed by the remaining terms and the Parties’ Conduct?

XII. 2-202 Parol Evidence? Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: a. (a) by course of dealing or usage of trade (Section 1–205) or by course of performance (Section 2–208); and b. (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

***no parol evidence if there is a merger doctrine***

XIII. Repudiation 2-610

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may a. (a) for a commercially reasonable time await performance by the repudiating party; or b. (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and c. (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

UCC 2-609 • Right to Adequate Assurance of Performance – (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. – (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. – (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. – (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

UCC 2-611 • Retraction of Anticipatory Repudiation • (1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. • (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2- 609). • (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.