CONTRACT LAW IN GENERAL: R

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1 CONTRACT LAW IN GENERAL: R 1. Cntract Defined A cntract is a prmise r a set f prmises fr the breach f which the law gives a remedy, r the perfrmance f which the law in sme way recgnizes as a duty. R 2. Prmise; Prmisr; Prmisee; Beneficiary (1) A prmise is a manifestatin f intentin t act r refrain frm acting in a specified way, s made as t justify a prmisee in understanding that a cmmitment has been made. (2) The persn manifesting the intentin is the prmisr. (3) The persn t whm the manifestatin is addressed is the prmisee. (4) Where perfrmance will benefit a persn ther than the prmisee, that persn is a beneficiary. R 3. Agreement Defined; Bargain Defined An agreement is a manifestatin f mutual assent n the part f tw r mre persns. A bargain is an agreement t exchange prmises r t exchange a prmise fr a perfrmance r t exchange perfrmances. R 4. Hw a Prmise May Be Made A prmise may be stated in wrds either ral r written, r may be inferred whlly r partly frm cnduct. Requirements fr a valid cntract: Bilateral r Unilateral? Cnsideratin (r substitutes), assent (ffer + acceptance magic mment), external limitatins n cntent f cntract/bargaining prcess requirements (n duress etc.), cntent requirements that make an therwise valid cntract unenfrceable (n uncnscinability, fraud/misrepresentatin) Private vs. Public in Cntracts Smetimes called private legislatin r private law making Binding cmmitting arrangements private individuals decide upn (after negtiating terms) It s in the private sphere n ne hand, but it s als public because nce it is a binding cntract the gvernment becmes relevant t enfrce it Nrmative aspect f cntract law! Justificatin f why the gvernment ught t enfrce it, why shuld they enfrce it, hw, and under what cnditins?! Why are sme prmises cntracts and nt thers?! Stability perhaps? Ecnmic and mral scial and cultural (especially first tw). US Cntract Law Cntract law in the united states is different in each state, there is n federal law. Hwever, that des nt mean that disputes will always be adjudicated in state rather than federal curt. (It ges t different curts in different circumstances if they have apprpriate jurisdictin). This is true since 1938, Erie v Tmpkins, which stated there is n federal cmmn law with regard t cntracts- they must use state law. Cmmn Law in the US Same jurisdictin binding (higher n lwer usually), vertically binding, als hrizntal smetimes t Primarily cmmn law in the US (frm f law judge made e.g. nt statute, created piecemeal, stari decisis binding precedent), even still tday. Hlding f precedent rati, dictum f precedent etc. (discuss mre later fret nt abut meanings) Surce is curt decisins Assumptin within cmmn law that despite each jurisdictin is independent there is sme cherence, principle etc. s that s why ther surces are persuasive authrity. Mst imprtant surce in the US is the Restatement 2 nd n Cntracts.! Nt law! Frequently cited due t its cmprehensiveness and cherence! Persuasive authrity! It s a dcument prduced by the American Law institute frmed in 1923! Purpse is t restate the cmmn law within particular areas. Recent Trends in Cntract Law in US

2 Statutry law UCC (Unifrm Cmmercial Cde) Substance " # 1) fair bargains/fairness 2) Ecnmic value: bargains vs. gifts 3) cautinary ntice and evidentiary Frm Fairness: We shuld nly enfrce fair bargains (this is nt ppular with curts except in special circumstances f justice: reliance, duress etc.) And substantive bargains what peple really intended. Subjective. Ecnmic Value: By and large, bargains are the srt f transactin that are mre ecnmically significant and valuable as ppsed t gifts. Private and scial cst t enfrcing prmise, we shuld nly enfrce thse prmises that are ecnmically significant e.g. mre scially valuable. Bargains are welfare enhancing, bth parties are suppsed t be better ff after the exchange. Usually bargains invlve a higher ecnmic value than gifts. The Frmality f Bargains Evidentiary (it demnstrates whether r nt a cntract was frmed) In case f a dispute (frmal r infrmal) makes it easier t decide if a cntract was actually frmed. Frmalities leave a trail. Helps t establish whatever needs t be established t find a certain legal utcme. (e.g. writing, etc.) Hw cnsideratin frms evidentiary: yu have better evidence f the bjective manifestatin f the parties t enter int a cntract, t be legally bund. Cautinary Ntice (it warns peple f the seriusness befrehand, aware f cnsequences, they knw whether their activity is in a cntract, it enhances certainty, reduces chance f peple reaching thse utcmes casually). Implied in Fact vs. Implied in Law: Implied in fact (cntext f parties- althugh nt explicitly said it is REALLY there it was what the parties really meant bjectively reasnable persn wuld understand) vs. implied in law (meaning curt is making it up- n basis in representatins between the parties express r therwise- curt impsing legal meaning and significance) centuries f precedence. POLICY QUESTIONS GENERALLY Hard cases make bad law (muddle distinctins) r Gd law (reemphasize justice and fairness) Risk allcatin (t whm shuld the risk be allcated?) Freedm frm cntract vs. freedm t cntract Requiring writing may allw fr bth. Peple can be bund if they really want t be but with cautinary ntice. (it als prvides evidentiary and???) Cnsequentialist arguments (ecnmic effects) vs. Fairness arguments Welfare enhancing? (Bargains) Three functins: Evidentiaryan Cautinary and ntice functin A gd rule: Cntracting available t nn lawyers! Freedm t cntract But nt s easy that unwary gets cntracted against will! Freedm frm cntract MUTUAL ASSENT Manifestatin f mutual assent R 4: Hw a prmise may be made Prmise may be made ral written inferred whlly r partly frm cnduct R 24: Offer Defined

3 An ffer is the manifestatin f willingness t enter int a bargain, s made as t justify anther persn in understanding that his assent t that bargain is invited and will cnclude it. R 50: Acceptance f Offer Defined; Acceptance by perfrmance; Acceptance by Prmise (1) Acceptance f an ffer is a manifestatin f assent (bjective) t the terms thereff made by the fferee in a manner invited r required by the ffer. (2) Acceptance by perfrmance requires that at least part f what the ffer request be perfrmed r tendered and includes acceptance by a perfrmance which perates as a return prmise. (2) Acceptance by a prmise requires that the fferee cmplete every act essential t the making f the prmise. Hawkins v. McGee (1929) 2: Hairy hand case, guarantee 100%, slicitatin Rule: If a persn makes a prmise in slicitatin f a perfrmance, that prmise is a cntract if the prmisee perfrms and it was reasnable t infer it was a prmise. R 4 (prmise made thrugh cnduct) which was an ffer R 24 & accepted by patient when he began t render perfrmance Plicy cnsideratins: Cnsequentialist cncerns abut dctrs being afraid t d risky prcedures and unfairness cncerns abut patients lack f knwledge Freedm t cntract vs. Freedm frm cntract Slutin: sme states e.g. Michigan have enacted legislatin t this effect. Which allws fr binding nly if written (leaves pen freedm t cntract, but als prvides freedm frm cntract); and als allws fr greater clarity f the terms Lucy v. Zehmer., (1954) pp , napkin cntract fr sale f real estate Rule: Subjective mental assent f parties is nt requisite fr the frmatin f a cntract. If the wrds/acts f the parties have but ne reasnable meaning, his undisclsed intentin is immaterial except when an unreasnable meaning which he attaches t his manifestatins is knwn. (Test fr assent = bjective test f utward manifestatins.) R 50: Acceptance f an ffer is an manifestatin f assent (bjective) t the terms Reasnable bjective manifestatins- bjective (vs. Meeting f minds- subjective) New example: bth parties dn t intend t be bund, but they d nt knw the ther knws that they are jking. Outward manifestatins lk serius. Under bth tests there is a cntract. This isn t mutual knwledge. Plicy reasns prbably against this- unacceptable t make cntract when neither thught there was ne s this is made an exceptin t rule Safety valve exceptin Prcedural Safeguards t ensure that when smene knws the intent is nt real, even if the bjective reasnable persn wuld nt frm the external evidence: availability f pretrial discvery t reveal incnsistent statements r evidence cnfidence in jury t tell when smene is lying fact that persn whse intent is at issue may be a crpratin leading t pssibility f cnflicting surces f intent frm disaffected frmer emplyees r trails. If I knw yur subjective meaning # bjective unless I d smething abut it. Skepticism abut intent t be bund: Optimistic statements frm dctrs t patients Statements made fr scial purpses! Thugh weddings might be binding especially if express agreement r guest f hnr where elabrate expenditures have been undertaken Statements made amng family members Factrs in determining whether parties meant t be bund

4 Whether there has been an express reservatin f the right nt t be bund in the absence f a writing Whether there has been partial perfrmance f the cntract Whether all f the terms f the alleged cntract have been agreed upn Whether the agreement at issue is the type f cntract that is usually cmmitted t in writing Reasnable bjective manifestatins- bjective (vs. Meeting f minds- subjective) Plicy Issues in favr f chsing the Objective Test! T easy fr peple t lie if n bjective test, n assurance cntract wuld be valid, and we need cntracts fr the ecnmy t allcate risks. Cnsequentialist argument Reliance- n reliance when bth knw its nt a cntract just a perfrmance.! Material evidence issue Cnsequentialist argument abut Administrability Little evidentiary value/lack f cautinary Makes cmplicated, cstly, hard t achieve.! Want t give peple freedm t cntract an bjective test wrks better fr this pssibly.! Fairness argument 1) It s unfair t the persn wh bjectively sught the cntract, all cnditins were met, persn agreed, if I behave reasnably and yu unreasnably believe that yur bjective representatins dn t mean what they actually mean yu cause me damage. 2) Nt reliance damages its expectatin damages. Nt enjying what yu wuld have if the cntract had been enfrced. Plicy issues against chsing the bjective test! Fairness argument 1) lacks a reliance pint shuld nly apply when reliance! Freedm frm cntract (especially in hard cases) Tensin between tw cncepts: 1. A meeting f the minds 2. N binding cntract absent writing Frm judicial effrt t reslve these tw a. That absent an expressed intent that n cntract shall exist, mutual assent between the parties, even thugh ral r infrmal, t exchange acts r prmises is sufficient t create a binding cntract b. That t avid the bligatin f a binding cntract, at least ne f the parties must express an intentin nt t be bund until a writing is executed Factrs cnsidered absent a writing 1. Whether there has been an express reservatin f the right nt t be bund in the absence f writing 2. Whether there has been partial perfrmance f the cntract 3. Whether all f the terms f the alleged cntract have been agreed upn a. Hw many agreed upn earlier, hw many left fr later mre left fr later, less likely t be a binding cntract b. Are the nes agreed n Deal breakers 4. Whether the agreement at issue is the type f cntract that is usually cmmitted t writing Prmises: Express r Implied Warranties as bases fr enfrcement (UCC) UCC 2-313: Express Warranties by Affirmatin, Prmise, Descriptin, Sample Express warranties are created as fllws: Express warranties by the seller are created as fllws: (a) Any affirmatin f fact r prmise made by the seller t the buyer which relates t the gds and becmes part f the basis f the bargain creates an express warranty that the gds shall cnfrm t the affirmatin r prmise. (b) Any descriptin f the gds which is made part f the basis f the bargain creates an express warranty that the gds shall cnfrm t the descriptin. (c) Any sample r mdel which is made part f the basis f the bargain creates an express

5 warranty that the whle f the gds shall cnfrm t the sample r mdel. (2) It is nt necessary t the creatin f an express warranty that the seller use frmal wrds such as "warrant" r "guarantee" r that he have a specific intentin t make a warranty, but an affirmatin merely f the value f the gds r a statement purprting t be merely the seller's pinin r cmmendatin f the gds des nt create a warranty. UCC 2-314: Implied Warranty: Merchantability; Usage f Trade. (1) Unless excluded r mdified (Sectin 2-316), a warranty that the gds shall be merchantable is implied in a cntract fr their sale if the seller is a merchant with respect t gds f that kind. Under this sectin the serving fr value f fd r drink t be cnsumed either n the premises r elsewhere is a sale. (2) Gds t be merchantable must be at least such as (a) pass withut bjectin in the trade under the cntract descriptin; and (b) in the case f fungible gds, are f fair average quality within the descriptin; and (c) are fit fr the rdinary purpses fr which such gds are used; and (d) run, within the variatins permitted by the agreement, f even kind, quality and quantity within each unit and amng all units invlved; and (e) are adequately cntained, packaged, and labeled as the agreement may require; and (f) cnfrm t the prmise r affirmatins f fact made n the cntainer r label if any. (3) Unless excluded r mdified (Sectin 2-316) ther implied warranties may arise frm curse f dealing r usage f trade. Bayliner Marine Crp. v. Crw, (1999) 4: Defendant (seller) gives buyer prp matrices abut speed f different bat and a brchure kind f bat yu need fr a bat. Rule: 1) If an item is substantially different frm that represented by the manufacturer there is n express warranty fr the different prduct. 2) An pinin des nt cnstitute an express warranty has t be a statement f fact UCC (see abve) & (nt implied because still merchantable?) Plicy Issues: Taking bargaining statements as fact may affect aggressive bargaining but have t be balanced against interest f cnsumer prtectin. There s als a cautinary ntice issue here. CONSIDERATION Requirement f Exchange **** FOR Cntract Mdificatin See Plicing Bargaining Prcess Belw R 71: 1. Either a prmise r a perfrmance has t be bargained fr in exchange fr the prmise. (can NOT be mere pretense e.g. N Peppercrn) 2. A perfrmance is bargained fr if it is sught by the prmisr in exchange fr his prmise and is given by the prmisee in exchange fr that prmise 3. Perfrmance may cnsist f An act ther than a prmise r A frbearance r The creatin mdificatin r destructin f a legal relatin R 73: The Pre-existing Duty Rule Perfrmance f a legal duty wed t a prmisr which is neither dubtful nr the subject f hnest dispute is nt cnsideratin 73 When is the mdificatin f a cntract prperly seen as resulting frm the genuine assent f the party t whm the perfrmance is wed, and when is a renegtiated deal mre likely the result f cercin? R 79:* Curts dn t cnsider mutuality f bligatin r equivalence in values because it is subjective and want t allw peple t decide fr themselves, freedm t cntract 1. N benefit/detriment requirement 2. Equivalence in values exchanged 3. Mutuality f bligatin