Analyzing the Contract

Was there a valid offer?

- Communicated to intended person
- Specify the performances
- Power of acceptance
- No further approval
- Would a reasonable person believe that the offeror intend to be bound?

Has the offer been effectively revoked?

- Communicated revocation directly or indirectly (see Dickinson)
- If offer is unilateral and offeree has begun performance, no revocation
- Mailbox rule: acceptance as soon as offeree dispatches; if offeror revokes after dispatch, but
before receipt, it’s still a contract
o Even if acceptance is lost in the mail, there is still a contract

Was there an acceptance while the offer was still in force?

- Acceptance can be expressed; or
- Acceptance can be implied
o Beginning performance
o Taking goods
- But must be made known to offeror (see Mailbox rule above)
- Has the offer been terminated?
o Offeree proposes counter-offer (see Minneapolis and St. Louis)
 Not in sale of goods (Battle of the Forms)
o Acceptance is not made within a reasonable time
o Offeror revokes offer (and this is communicated directly or indirectly)
o One party dies before acceptance
- Formation defenses:
o Mistake
 Mutual (same mistake about same subject matter; see Anderson Bros)
 Basic assumption on which the contract was made (see Sherwood)
 Material effect
o Misrepresentation/Fraud
 Fact induced recipient to enter contract (see Leaco Corp.)
 Can be negligently or innocently made (see Halpert)
 Misrep of fact, not opinion
o Duress
 Involuntary acceptance of terms
 Circumstances permit no other alternative (see Austin Instrument)
 Circumstances were result of coercive acts of other party (see Totem)
o Unconscionability
 Substantive: extreme unfairness under the totality of the circumstances (see
Williams)
 Procedural: party is induced to enter the contract without having any meaningful
choice

Is there consideration?
- Is the promisee obliged to suffer a detriment in exchange for the promisor’s promise
- If not, do circumstances fall under these:
 Analyzing the Contract
o Promissory estoppel
 Promise induced reasonable reliance to promisee’s detriment: no consideration,
but promisor is bound to perform
o Pre-existing duty
 No consideration
 But modification will be upheld if voluntarily agree to and fair and equitable in
view of circumstances not anticipated when the contract was made (see Angel)
o Past consideration
 No consideration; not binding (see Mills)

Is there a written agreement?

- Some types of transaction require a written agreement (Statute of Frauds)
o Sale of land
o Sale of goods over $5000
o To be performed in over one year (Crunch Time p. 91)
o To answer for the debt of another
o In consideration of marriage
- Formal document not always required; a signed memo can be enough if (see Azvedo, Rosenfeld)
o Reasonably identifies the subject matter
o Indicates a contract has been made
o States essential terms
o Signed by the party usually being sued
- Parol Evidence Rule
o Is the written agreement integrated?
 Most contemporary judges will allow contextual evidence to determine if the
agreement is integrated completely or partially (see Materson)
 Is there a merger clause?
• Stating that the writing constitutes the sole agreement between the parties
• If so, court will likely find the writing to have been intended as a total
integration
 Is it complete?
•  No evidence
 Is it partial?
• Evidence only if it supplements the agreement (but not if it contradicts
any terms)
o Exceptions (PE will be allowed for the following):
 Attack validity of agreement
 Consideration
 Interpret ambiguous terms
- Is there an ambiguous term?
o 3 Judicial Approaches:
 Four corners: no p.e.; no contextual evidence
 Plain meaning: no p.e.; contextual evidence allowed (most common approach)
 Liberal rule: p.e. and contextual evidence allowed
o Maxims of interpretation: how to decide between two interpretations
 Look at the primary purpose parties entered the contract
 Interpret terms so that they’re reasonable, lawful, and effective
 Analyzing the Contract
 Construe term against the person who drafted the contract
 Negotiated terms control over boilerplate terms

Are there conditions that must be satisfied?

- What are the expressed conditions?
o Does the condition trigger an obligation?
o Does the condition cancel or modify an obligation?
o Strict compliance is generally required of expressed conditions
 Language articulates the intent to make performance contingent on an event
- Did the parties fail to adequately document their arrangement, thereby requiring the court to
imply a condition?
o Court must first determine the type of covenant (independent or dependent?)
o Then determine, if dependent, the degree of breach (see below)

Was there a breach?

- Was it material and total?
o Rule: A breach is material if the failure or deficiency in performance is so central to the
contract that it substantially impairs its value and deeply disappoints the reasonable
expectations of the promisee. It’s a broad and vague test, but it must be because
materiality is a factual question that cannot be resoled in the abstract.
o Materiality is a question of interpretation, to be decided by assessing the importance of the
breach in light of the purpose of the contract, determined by its terms and context
o Withhold performance, terminate, claim full damages for breach
- Was it material and partial?
o Did the victim treat the material breach as total?
o Possibility of a cure
o Suspend performance, await cure, claim compensation for any loss suffered
- Was it not material (substantial performance)?
o Breach not so severe that it undermines promisee’s reasonable expectations
o Claim compensation for any loss suffered
- Did the breaching party have a valid excuse for breaching?
o Impossibility: was performance made literally impossible?
 Event must have occurred after contract was made
 Non-occurrence of event was a basic assumption of contract
 Event was not the fault of discharging party
 Risk of event was not allocated to discharging party
 Example: building burns down
o Frustration: was discharging party’s primary purpose of entering contract destroyed?
 Event was unforeseeable at the time the contract was made
 The event deprived the party of intended benefit
 Event was not the fault of discharging party
 Risk of event was not allocated to discharging party
o Impracticability: was performance made extraordinarily impracticable?
 Non-occurrence of event was a basic assumption of contract
 Continued performance is not commercially practical
 Risk of event was not allocated to discharging party
 Analyzing the Contract
What is a suitable remedy?
- Did P suffer economic harm due to the breach?
o When the cost of giving the P his contractual expectation exceeds his actual ultimate
financial loss, should his damages be confined to reimbursement of that ultimate loss?
(Concrete slab example, p 705) (think about this with substantial performance)
- Was D’s breach deliberate and willful? (Courts often weigh this in with the harm P suffers)
- Is P entitled to expectation damages?
o Limits on damages (E&E p. 648)
 Avoidability (D raises this issue):
• Was mitigation unduly risky, burdensome, or humiliating? If so, P may not
have been required to mitigate
• Failure must be unreasonable or in bad faith
• Not required to accept any substitute that is substantially different or
inferior to the one first contracted for
• Duty is to make reasonable effort, not exhaustive inquiry
 Certainty
• How clear at the time of the suit is the estimation of damages?
• P must show amount of his losses with reasonable certainty
 Foreseeability
• Consequential damages resulting from D’s breach must have been
foreseeable at the time the contract was made
• If the consequential damages are far-fetched, they must have been made
known to the D
• If the consequential damages are not that far-fetched, the court will use an
objective test to figure out what a reasonable person in D’s situation would
have reasonably foreseen
- Is P entitled to reliance damages?
o Expectation damages are inadequate
o P is awarded damages based on expenditures made in reliance on the contract
o Any expenses incurred before the contract was made (even if in anticipation for contract)
will not be calculated in
- Is P entitled to restitutionary damages?
o P has partially performed, then D breaches
o D is unjustly enriched by P’s performance and P is left without compensation
o Court will disgorge D of benefits
o Court will generally base damage on market value of performance rather than limiting
damages to contract amount
- Is P entitled to specific performance?
o Damages are inadequate
o Terms are definite (so that the court can formulate a clear order)
o Court’s task of enforcement would not be unduly difficult
- Is P entitled to injunctive relief?
o Can the party be refrain from doing something?
- Did the contract contain a liquidated damages clause?
o Is the amount definite?
o Is the amount reasonable?
 Look at whether actual calculation of damages was foreseeably difficult at the time
of contracting
 Analyzing the Contract
 Then in hindsight, whether the LD unfairly overcompensates the non-breaching
party
o Would damages be difficult to calculate?
o Is it a boilerplate provision, thereby suggesting that LD were not freely bargained
(unconscionable contract of adhesion) and/or that it might not be a genuine estimate of the
likely harm that would result from a breach?