1. Contracts
Chapter 7 - 13
Business Law
4/27/2009

2. Definition of a Contract
• A contract is an agreement that can be
enforced in court. A contract may be
formed when two or more parties each
promise to perform or to refrain from
performing some act now or in the future.
A party who does not fulfill his or her
promise may be subject to
sanctions, including damages or, under
some circumstances, being required to
perform the promise.

3. Intent
• The intent to enter into a contract is
important in the formation of a contract.
Intent is determined by the objective
theory of contracts. The theory is that a
party’s intention to enter into a contract is
judged by outward, objective facts as they
would be interpreted by a reasonable
person, rather than by the party’s own
secret, subjective intentions. Objective
facts include: (1) what the party said; (2)
how the party acted or appeared; and (3)
the circumstances surrounding the
transaction.

4. Offer--Requirements
• Serious Intention:
– Opinions are not offers.
– Good Intentions are not offers.
– Preliminary Negotiations are not offers.
– Agreements to Agree are not offers.
– Auctions are not offers.
– Definiteness: Offer must have reasonably
definite terms so a court can determine
whether breach occurred.
– Communication: Offer must be
communicated to offered.

5. Legal
• The use of contract principles to
govern the relationships of those who
make promises dates back
thousands of years.
• Modern capitalist society could not
exist without the law of contracts.
The foundation for almost all
commercial activity is the contract.

6. The Function of Contracts
• Contract law is needed to ensure
compliance with a promise or to entitle a
nonbreaching party to relief when a
contract is breached. All contractual
relationships involve promises, but all
promises do not establish contractual
relationships. Most contractual promises
are kept; keeping a promise is generally in
the mutual self-interest of the promissory
and the promisee.

7. A Contract -
• Agreement that can be enforced in
court.
• Formed by two or more parties.
• Failure to perform results in breach
and damages
• A valid, enforceable contract
includes:
– Agreement.
– Consideration.
– Capacity.
– Legality.

8. Nature & Classification –
• Function of Contracts:
– Fundamental to business.
– Creates rights and duties between
parties.
– Provides stability and predictability.
• Parties: Promisor (makes the
promise) and Promisee (accepts the
promise).
– Good faith in commercial agreements

9. Intention
• Serious intent is determined by what
a reasonable person in the offeree’s
position would conclude the offeror’s
words and actions meant. Offers
made in obvious anger, jest, or
undue excitement do not meet the
test.

10. Definiteness
• A contract must have reasonably definite
terms so that a court can determine if a
breach has occurred and can give an
appropriate remedy. An offer may invite
an acceptance to be worded in specific
terms so that the contract is made definite.
Courts may supply a missing term when
the parties have clearly manifested an
intent to form a contract, but they will not
do so if the parties’ expression of intent is
too vague or uncertain.

11. Communication
• An offer must be communicated to
the offeree, so that the offeree knows
it. Ordinarily, one cannot agree to a
bargain without knowing that it exists.
• Offer and Acceptance

12. Requirements of a Contract
• The four essential elements of a contract
are
• (1) agreement
• (2) consideration - Consideration is the
value given in return for a promise.
• (3) contractual capacity
• (4) legality
• Agreement and Consideration

13. Legal Aspect
• Contract law shows what promises or
commitments our society believes
should be legally binding. It shows
what excuses our society will accept
for the breaking of promises. And it
shows what kinds of promises will be
considered to be against public policy
and therefore legally void.

14. Types of Contracts--Formation
• 1) Bilateral Contracts:
– Offeror and Offeree exchange promises to each
other.
– A contract is formed when Offeree promises to
perform.
• 2) Unilateral Contracts:
– Offeror wants performance in exchange for his
promise.
– Contract is formed when Offeree performs.
– Contests and lotteries are examples.
– Revocation of Offer: modern view is that offer is
irrevocable once the Offeree substantially
performs.
– Unilateral Contract

15. Bilateral v. Unilateral Contracts
• Every contract involves at least two parties: an
offeror and an offeree. The offeror promises to
do or not to do something. Whether a contract is
unilateral or bilateral depends on what the
offeree must do to accept. A bilateral contract is
a promise for a promise; if the offeree need only
promise to perform, the contract is bilateral. A
unilateral contract is a promise for an act; if the
offeree can accept only by complete
performance, the contract is unilateral. A
unilateral contract’s offer becomes irrevocable
once substantial performance has been
completed.

16. Types of Contracts--Formation
• 3) Express vs. Implied Contracts.
– Express: terms of contract are set
forth either in writing or orally.
• 4) Implied-in-Fact: based on
conduct.
– Plaintiff furnished service or product.
– Plaintiff expects to be compensated.
– Defendant had a chance to reject and
did not.

17. Express v. Implied Contracts
• An express contract is one in which the terms are
expressed in words, oral or written. A contract
that is implied from the conduct of the parties is
an implied-in-fact contract, or simply an implied
contract. The parties’ conduct reveals that they
intended to form a contract and creates and
defines its terms. To establish an implied-in-fact
contract: (1) the plaintiff must have furnished
some service or property; (2) the plaintiff must
have expected to be paid and the defendant
knew or should have known that payment was
expected; and (3) the defendant had a chance to
reject the service or property and did not.

18. Types of Contracts--Formation
• 5) Formal vs. Informal Contracts.
– Formal: require special form or method
to be enforceable, e.g., under seal.
– Informal: all other contracts.
• 6) Contract Performance: Executed
vs. Executory.
– Executed: fully performed by both sides.
– Executory: at least one of the parties
has not performed.

19. Formal v. Informal Contracts
• Formal contracts require a special form or
method of formation to be enforceable.
Formal contracts include contracts under
seal, which are writings with a special seal
attached. All other contracts are informal
contracts, or simple contracts. For
these, no special form is required (except
for certain types of contracts that must be
in writing).

20. Contract Enforceability
• Valid Contract.
– Four Elements:
– Agreement
– Consideration
– Legal Purposes
– Parties have legal capacity.
• Voidable Contract.
– Valid contract that is legally defective and
can be avoided (rescinded) by one of the
parties.

21. BILATERAL
A promise for a promise
UNILATERAL
A promise for an act
VALID
A contract that has all the EXPRESS
nec. Elements
Formed by words
VOID
No contract w/out legal IMPLIED IN FACT
obligation
Formed at least in
part by the parties
VOIDABLE
conduct
A contract where a party has
the option of voiding
QUASI CONTRACT
UNENFORCEABLE
Imposed by law to
A contract which can not be
prevent unjust
enforced because of legal
enrichment
defenses
EXECUTED FORMAL
A fully performed contract Requires a special form for
EXECUTORY creation
A contract not yet fully INFORMAL
performed Requires no special form

22. Interpretation of Contracts
• Plain Language Laws.
– If language is clear from face of
contract, court will enforce a contract
according to plain terms.
– If language is not clear, courts cannot
consider extrinsic evidence
• Other Rules of Interpretation.
– Plain Meaning Rule, Trade
usage, Custom, Prior Dealings.

23. PLAIN MEANING RULE
• When a contract is in writing that is
not subject to conflicting meanings, a
court will enforce the writing
according to its plain meaning.
Under this plain meaning rule, the
meaning of the words must be
determined from the face of the
instrument—a court cannot consider
evi-dence extrinsic to the document.

24. Agreement and Consideration - Ch. 8
• Agreement:
• An essential element of contract
formation is AGREEMENT:
– OFFER, and
– ACCEPTANCE
• Elements: - Offer
– Serious Intention,
– Reasonably Definite Terms, and
– Communication to Offeree.

25. Offer--Requirements
• Serious Intention:
– Opinions are not offers.
– Good Intentions are not offers.
– Preliminary Negotiations are not offers.
– Agreements to Agree are not offers.
– Auctions are not offers.
– Definiteness: Offer must have reasonably
definite terms so a court can determine
whether breach occurred.
– Communication: Offer must be
communicated to offeree.

26. Expressions of Opinion
• An expression of opinion is not an offer. For
example, a doctor’s opinion that a hand will heal within
a few days of an operation is not an offer. No offer is
made when a party says that he or she plans to do
something. A request or invitation to negotiate is not
an offer. (This includes statements such as ―Will you
sell your estate?‖ and ―I wouldn’t sell my car for less
than $1,000.‖)
• An invitation to submit bids is not an offer. Thus, when
contractors are invited to bid on a job, the party to
whom the bid is submitted is not bound. (The bid is an
offer, however, and the contractor is bound by its
acceptance.)

27. Advertisements, Catalogues, and Circulars
• In general, ads, catalogues, price lists, and
circular letters are treated as invitations to
negotiate. If an ad to sell a single item was
interpreted as an offer, and fifty people
accepted, the offeror would breach forty-nine
contracts. A price list is not an offer to sell at that
price; it invites the buyer to offer to buy at that
price.
• If an ad makes a promise so definite that it is
apparent that the offeror is binding him-self or
herself to the conditions stated, the ad is treated
as an offer. Thus, an ad may be an offer if it
solicits performance—for example, by offering a

28. Auctions
• An auction is not an offer—the owner is only
expressing a willingness to sell. In an auction with
reserve, the owner may withdraw the goods any time
before the auctioneer closes the sale. An auction is
assumed to be with reserve, unless it is stated to be
with-out reserve, in which case the goods cannot be
withdrawn and must be sold to the highest bidder. In
an auction with reserve, the bidder is the offeror. A
bidder may revoke his or her bid, or the auctioneer
may reject it, before the auctioneer strikes the
hammer, which constitutes acceptance of the bid.
When a bid is accepted, all previous bids are rejected.

29. Offer—Termination
• By Act of the Parties.
• Revocation by Offeror (unless
irrevocable).
• Rejection by Offeree (or
counteroffer).
• Operation of Law: lapse of
time, destruction, death or
incompetence, supervening illegality

30. Revocation of the Offer
• Generally, an offer may be revoked any time
before acceptance, even if the offeror agreed to
hold it open, but revocation is effective only on
receipt. Revocation can be express or implied
by conduct inconsistent with the offer.
Revocation of an offer made to the general
public must be communicated in the same
manner in which the offer was communicated.
One form of irrevocable offer is an option
contract, which is created when an offeror
promises to hold an offer open for a specified
period of time in exchange for a payment by the
offeree.

31. Rejection of the Offer by the Offeree
• An offer may be rejected by the offeree.
A subsequent attempt to accept will be
construed as a new offer. Rejection can
be express or implied by conduct
evidencing an intent not to accept. It is
effective only on receipt. Asking about
an offer is not rejection, but an
ambiguous response may be construed
as a rejection.

32. Counteroffer by the Offeree
• A counteroffer is a rejection and a
simultaneous making of a new offer. The
mirror image rule requires that the
offeree’s acceptance match the offeror’s
offer—any material change in the terms
automatically terminates the offer and
substitutes a counteroffer.

33. Unequivocal Acceptance
• Unequivocal acceptance is required by the mirror image
rule. An acceptance subject to new conditions or with
terms that materially change the offer (―I accept the
offer, but only if I can pay on ninety days’ credit‖) may
be considered a counteroffer. An acceptance may be
unequivocal even though the offeree expresses
dissat­isfaction (―I accept the offer, but I wish I could
have gotten a better price‖ is effective). Conditions that
add no new terms do not turn an acceptance into a
rejection (―I accept; please send written contract‖)
unless the acceptance is made conditional (―I accept if
you send a written contract‖).

34. Acceptance
• Voluntary act by Offeree that shows
assent to terms of original offer.
• Mirror Image Rule.
– Offeree must unequivocally accept
offer.
– Additional terms may be considered a
counteroffer.
• Acceptance by Silence.
– Ordinarily silence is not
acceptance, unless offeree has duty to
speak (benefit of services).

35. Silence as Acceptance
• Ordinarily, silence cannot be acceptance. Silence
can operate as acceptance if an offeree takes the
benefit of offered goods or services even though
he or she had an opportunity to reject and knew
that they were offered with the expectation of
compensation. Silence can operate as
acceptance when the parties have had prior
dealings in which the offeree has led the offeror
reasonably to understand that the offeree will
accept all offers unless the offeree sends notice
to the contrary.

36. Acceptance
• Communication of Acceptance.
– Authorized Means of Communication
is either express or implied by form of
offer (e.g., U.S. mail, fax, email).
– ―Mailbox Rule‖: Offeree accepts offer
when the acceptance is dispatched to
Offeror in the form it was
received, unless offer requires a
different method (e.g., Fed-Ex, or
receipt by Offeror).

37. Acceptance
• An acceptance is timely if it is made
before the offer is terminated.
Acceptance is effective when it is sent by
whatever means is authorized by the
offeror. This is the mailbox rule.
Specific means can be stated in the offer
or authorized by facts or by law. If an
offeror specifies an exclusive means, the
contract is not formed unless the offeree
uses that means.

38. Consideration and Its Requirements
• Consideration is value given in return
for a promise.
– Something of legally sufficient value,
– Given in a bargained-for-exchange
between the parties.

39. Legal Sufficiency and Adequacy
• Sufficient consideration must be
something of value in the eyes of the
law.
• Adequate consideration is ―fair‖
although courts do not generally
consider this.
• If consideration is inadequate
(e.g., fraud) courts may strike down
the contract as unconscionable.

40. Contracts That Lack Consideration
• Pre-Existing Duty.
• Unforeseen Difficulties.
• Past Consideration.
• Illusory Promises

41. Settlement of Claims p. 168/9
• Accord and Satisfaction.
– A method of discharging a claim whereby the parties
agree to give and accept something in settlement of the
claim and perform the agreement, the accord being the
agreement and the satisfaction its execution or
performance, and it is a new contract substituted for an
old contract which is thereby discharged, or for an
obligation or Cause of Action which is settled, and must
have all of the elements of a valid contract.
• Release.
• Covenant Not to Sue

42. Promissory Estoppel p. 169
• Promissory Estoppel (―detrimental
reliance‖) doctrine applies when a
person relies on the promise of another
to her legal detriment.
• Promisor is ―estopped‖ (precluded) from
revoking the promise. There must be:
– Clear and definite promise with substantial
reliance
– Justice is served by enforcement of the
promise.

43. Capacity and Legality – Ch. 9
• Contractual Capacity.
– The legal ability to enter into a contractual
relationship.
• Full competence.
• No competence.
• Limited competence.
• Capacity & Illegality: Exculpatory Clauses
• Legality.
– The agreement must not call for the
performance of any act that is
criminal, tortious, or otherwise opposed to
public policy.

44. Minors
• In most states, a person is no longer
a minor for contractual purposes at
the age 18.
• A minor can enter into any contract
that an adult can.
• A contract entered into by a minor is
voidable at the option of that minor.

45. Disaffirmance
• A contract can be disaffirmed at any
time during minority or for a
reasonable period after the minor
comes of age.
• Minor must disaffirm the entire
contract.
• Disaffirmance can be expressed or
implied.

46. A Minor’s Obligations on
Disaffirmance
• In most states, minor need only
return the goods (or other
consideration) subject to the
contract, provided the goods are in
the minor’s possession or control.
• In increasing number of states, the
minor must restore the adult to the
position held before the contract was
made.

47. Exceptions to Minor’s
Right to Disaffirm
• Misrepresentation of Age.
– Generally, a minor can disaffirm the
contract.
– But some states prohibit Disaffirmance
and hold the minor liable.
• Contracts for Necessaries.
– Contracts for food, clothing, shelter may
be disaffirmed by minor, who remains
liable for the reasonable value of goods
or services.

48. Exceptions to Minor’s
Right to Disaffirm
• Insurance.
– Not viewed as necessaries, so minor
can disaffirm contract and recover all
premiums paid.
• Loans.
– Seldom considered to be necessaries.
– Exception:
• Loan to a minor for the express purpose of
enabling the minor to purchase
necessaries.

49. Ratification by Minor
• Occurs when a minor, on or after
reaching majority, indicates
(expressly or impliedly) an intention
to become bound by a contract made
as a minor.
• Emancipation.
– Removes lack of contractual capacity.

50. Parents’ Liability
• Contracts.
– Parents not liable (This is why parents
are usually required to sign any contract
made with a minor).
• Torts (Statutes Vary):
– Minors are personally liable for their
own torts.
– Liability imposed on parents only for
willful acts of their minor children.
– Liability imposed on parents for their
children negligent acts that result from
their parents’ negligence.

51. Intoxicated Persons
• Lack of contractual capacity at the time
the contract is being made.
• Contract can be either voidable or valid.
– Courts look at objective indications to
determine if contract is voidable.
• If voidable:
– Person has the option to disaffirm, or
– Person may ratify the contract expressly or
impliedly.

52. Mentally Incompetent Persons
• Void: If a person has been adjudged
mentally incompetent by a court of law and
a guardian has been appointed.
• Voidable: If the person does not know he or
she is entering into the contract or lacks the
mental capacity to comprehend its
nature, purpose, and consequences.
• Valid: If person is able to understand the
nature and effect of entering into a contract
yet lacks capacity to engage in other
activities. Lucid Interval.

53. Legality
• A contract to do something prohibited
by federal or state statutory law is
illegal and therefore void (never
existed).
– Contract that calls for a tortious act.
– Contract that calls for an act contrary to
public policy.

54. Contracts Contrary to Statute
• Usury.
• Gambling.
• Sabbath Laws. (Sunday)
• Licensing Statutes.
• Contracts to Commit a Crime.
• Contracts with Unlicensed
Practitioners.

55. Contracts Contrary to Public Policy
• Contracts contrary to public policy-void.
• Unconscionable Contracts or Clauses.
• Procedural or Substantive
Unconscionability.
• Exculpatory Clauses.
• Discriminatory Contracts.
• Contracts for the Commission of a Tort.

56. Unconscionable Contracts
• Ordinarily, a court does not look at the
fairness or equity of a contract; for
example, a court normally will not inquire
into the adequacy of consideration.
Persons are assumed to be reasonably
intelligent, and the court does not come to
their aid just because they made unwise
or foolish bargains….however, bargains
are so oppressive that the courts
sometimes relieve innocent parties.

57. Unconscionable Contract or Clause
A contract/clause that is void for
reasons of public policy
Procedural Unconscionability Sustentative Unconscionability
This occurs if a contract is entered This exist when a contract, or
into, or a terms becomes part of a one of its terms, is oppressive or
contract, because of a party’s lack of overly harsh
knowledge or understanding of the
contract or its term.
Factors that Courts Consider Factors that Courts Consider
•Is the print inconspicuous? Does the provision deprive one
•Is the language unintelligible? party of the benefits of the
•Did one party lack an opportunity to ask agreement?
questions about contract? Does a provision leave one party
•Was there a disparity of bargaining power w/out a remedy for
between the parties nonperformance by the other?

58. Contract Enforceability Ch. 10
• In what types of situations might
genuineness of assent to a contract’s terms
be lacking?
• What is the difference between a mistake of
value or quality and a mistake of fact?
• What elements must exist for fraudulent
misrepresentation to occur?
• What contracts must be in writing to be
enforceable?
• What is parol evidence? When is it
admissible to clarify the terms of a written
contract?

59. Mistakes
• Mistake of Value (or Quality).
– Contract is enforceable.
• Mistake of Fact.
– Unilateral Mistake of Material Fact—
mistaken party does not have the right to
cancel contract unless:
• (1) the non-mistaken party knew or should
have known about the mistake, or
• (2) there is a clerical error.
• Bilateral (Mutual) Mistakes—if both are
mistaken either one can cancel the contract.

60. Mistakes of Fact
Bilateral Unilateral Mistake
Mistake Enforceable unless
Other party
knew or
should have
Contract
Material about mistake
can be
Mistake rescinded Mistake was
of Fact either party due to
substantial
math. Error, or
made
inadvertently

61. Fraudulent Misrepresentation
• Innocent party can cancel the
contract.
• Plaintiff must show:
– Misrepresentation of a material fact
(not opinion) by conduct, silence or
words.
– Intent to deceive.
– Innocent party must have justifiably
relied on the misrepresentation.
– Plaintiff must have suffered a legal
injury.

62. Undue Influence and Duress
• Undue Influence.
– Arises from a special relationship of
trust.
– A stronger party overcomes a weaker
party’s free will by exerting
psychological influence.
• Duress.
– Threat of physical force or extortion.
– Can serve as basis for rescission of
contract.
– Economic need, by itself, is not duress.

63. Statute of Frauds: The Requirement
of a Writing
• Statute of Frauds requires certain
contracts to be in writing and signed
to be enforceable.
– A contract involving an interest in land.
– A contract that by its terms cannot be
performed within 1 year of execution.
– Collateral contracts to answer for the
debt of another.
– Prenuptial agreement.
– Contracts for sale of goods over $500.

64. The One-Year Rule
One Year from the day after the
Date of Contract
date of Contract Formation
Formation
One Yr.
If the contract can possibly be If performance cannot possibly be
performed within a year, the completed within a year, the
contract does not have to be in contract must be in writing to be
writing to be enforceable enforceable

65. Exceptions to Statute of Frauds
• Partial performance.
– Purchaser has paid part of purchase
price, taken possession and made
valuable improvements to property.
• Admissions.
– Party admits in court records contract
exists.
• Promissory Estoppel/Detrimental
Reliance.
– Promisee justifiably relies.

66. Sufficiency of the Writing
• ―Writing‖ includes
memorandum, invoice, fax, check, e
mail.
• Essential terms sufficient.
• Signed by party against whom
enforcement is sought (Defendant).
• Initials of Defendant adequate.

67. Parol Evidence Rule
• Prohibits the introduction at trial of
evidence of the parties prior
communications that contradicts the
written contract.
• Exceptions (allow parol evidence):
– To show Contract is void or voidable
– Subsequent contract modifications
– Ambiguous Terms
– Prior Dealings
– Obvious or gross clerical errors

68. Third Party Rights and Discharge
• What is the difference between an
assignment and a delegation?
• What rights can be assigned despite
a contract clause expressly
prohibiting assignment?
• What factors indicate that a third
party is an intended beneficiary?
• How are most contracts discharged?
• What is a contractual condition, and
how might a condition affect
contractual obligations?

69. Assignments
• Transfer of
contractual rights to
a 3rd party
(assignee).
• The assignee has
the right to demand
performance from
the other original
party (Obligor) to the
contract.
• Cannot Assign rights
for personal services
or when obligor’s
performance
changes.

70. Third Party Beneficiaries
• 3rd Party Intended Beneficiaries
(Creditor and Donee) Original
parties to K intend at the time of
contracting that the contract
performance directly benefit a 3rd
party. After rights vest, 3P can sue
for breach.
• 3re Party Incidental Beneficiaries.
Benefit is unintentional. 3P has no
rights.

71. Discharge: Conditions of
Performance
• Conditions to Performance:
– Condition is a possible future event that
may or may not happen.
– Triggers or terminates performance.
– Condition Precedent: prior to
performance.
– Condition Subsequent: follows initial
performance.
– Concurrent: occur simultaneously.

72. Discharge by Performance
• Complete vs. Substantial
Performance.
– Complete Performance: perfect
performance under the contract.
– Substantial Performance: technically
a minor breach but as long as in
good faith, the non-breaching party
remains liable to pay.
– Satisfaction Contract: performance is
conditioned on reasonable
satisfaction.

73. Discharge by Performance
• Material Breach
– When performance is not substantial.
– Innocent party is excused from
performance and has the right to sue for
damages.
– A minor breach may be cured.
– CASE 11.3 Kim v. Park (2004).
• Anticipatory Repudiation
– One party gives notice of refusal to
perform.
– Innocent party treats AR as material
breach.

74. Discharge by Agreement
• Discharge By Mutual Rescission:
parties must make another
agreement.
• Discharge by Novation: new contract
with substitution of a third party for
one of the original parties.
• Accord and Satisfaction: settlement
to discharge original contract.

75. Discharge by Operation of Law
• Contract Alteration.
– Statutes of Limitations.
– Bankruptcy.
– Impossibility of Performance
(Objective).
• Party’s incapacitation.
• Subject matter is destroyed.
• Performance becomes illegal.
• Commercially impracticable.

76. Contract Discharge
Agreement
Condition
Performance
Pending
Contract
Discharge
Oper. of
Breach
Law

77. Breach and Remedies Ch. 12
• What is the difference between
compensatory and consequential damages?
What are nominal damages, and when do
courts award nominal damages?
• What is the standard measure of
compensatory damages when a contract is
breached? How are damages computed
differently in construction contracts?
• Under what circumstances is the remedy of
rescission and restitution available?
• When do courts grant specific performance
as a remedy?
• What is the rationale underlying the doctrine
of election of remedies?

78. Types of Damages
• Compensatory Damages:
– Compensates injured party (Plaintiff).
– Plaintiff must prove actual damages
caused by breach. Amount:
• Generally: difference between
Defendant’s promised performance and
actual.
• Sale of Goods: difference between the
contract price and market.
• Sale of Land/Construction Contracts.

79. Types of Damages
• Consequential (Special) Damages
– Foreseeable damages that result from
breach of contract.
– Caused by other than breach of contract.
• Punitive (Exemplary) Damages.
– Deter wrongdoer; set example.
• Nominal Damages.
• Mitigation of Damages.
– Injured party has a legal duty to mitigate
damages.

80. Damages - Chart
Remedy Availability Result
Compensatory Damages A party sustains & proves The insured party is
an injury from loss of the compensated for the loss
bargain of a bargain
Special circumstances of The injured party is given the
Consequential Damages
which the breaching party is entire benefit of the bargain,
aware or should be aware, such as forgone profits.
cause the injured party
additional loss
Punitive Damages Damages are normally The wrongdoer is
available only when a tort punished, and others are
is also involved deterred from committing
similar acts
Wrongdoing is established
Nominal Damages There is no financial loss
w/out actual damages being
suffered. Plaintiff is awarded
a nominal amount ($1)
Liquidated Damages A contract provides a Nonbreaching party is

81. Measurement of Damages
Party in Time of Breach Measurement of
Breach Damages
Owner Before construction has Profits less cost of
begun materials and labor
Owner During Construction Profits plus cost incurred
up to the time of breach
Owner After Construction is Contract plus
completed Interest
Contractor Before Construction has Cost above contract price
begun to complete work
Contractor Before Construction is Generally, all cost
completed incurred by owner to
complete work

82. Equitable Remedies
• Rescission: cancel or undo a
contract.
– Available for fraud, mistake, duress and
failure of consideration.
• Restitution: recapture the benefit
conferred on the defendant that has
unjustly enriched her.
– Parties must return goods, property or
money.
• Specific Performance.
• Reformation: court re-writes the contract to
reflect parties’ true intentions

83. Recovery Based on Quasi Contract
• Plaintiff must show:
– Benefit was conferred on the other
party.
– Party conferring benefit expected
to be paid.
– Party seeking recovery did not
volunteer.
– Retaining benefit without payment
would be unjust enrichment.

84. Remedies available

85. Contract Provisions Limiting
Remedies
• Exculpatory Clauses or Limitations of
liability clauses.

86. E-Contracts – Ch. 13
• What are some important clauses to
include when making offers to form
e-contracts?
• How do shrink-wrap and click-on
agreements differ from other
contracts? How have traditional laws
been applied to these agreements?
• What is an electronic signature? Are
electronic signatures valid?
• E-Contracts: Agreeing Online

87. Forming Contracts Online
• Online Offers should include:
– Remedies for Buyer.
– Statute of Limitations.
– What constitutes Buyer’s acceptance.
– Method of Payment.
– Seller’s Refund and Return Policies.
– Disclaimers of Liability.
– How Seller will Use Buyer’s Information
(Privacy).

88. Forming Contracts Online
• Dispute Settlement Provisions.
– Choice of Law.
– Choice of Forum.
– E-Bay uses online dispute resolution.
• Displaying the Offer (via hyperlink).
• How Offer Will Be Accepted.
– Amazon.com--Checkout.
– ―I Accept‖ Button to Click

89. Online Offers
• ONLINE OFFERS
• Terms should be conspicuous and clearly
spelled out. On a Web site, this can be done
with a link to a separate page that contains the
details. The text lists subjects that might be
covered, including remedies, forum selection,
payment, taxes, refund and return policies,
disclaimers, and privacy policies. An online
offer should also include a mechanism by
which an offered can affirmatively indicate
assent (such as an ―I agree‖ box to click on).
•

90. Online Acceptances
• Click-on Agreements.
• Shrink-Wrap Agreements.
– Contract terms are inside the box.
– Party opening box agrees to terms by
keeping merchandise.
• Enforceable Contract Terms. (UCC
2-204). page. 241
• Additional Terms.

91. ONLINE ACCEPTANCES
• A shrink-wrap agreement is an agreement
whose terms are expressed inside a box in
which computer hardware or software is
packaged. In most cases, the agreement
is not between a seller and a buyer, but
between a manufacturer and the user of
the product. The terms generally concern
warranties, remedies, and other issues
associated with the use of the product.

92. Online Acceptances
• Click-On Agreements occur when
Buyer ―checks out‖ or clicks on ―I
Accept‖ button on Seller’s website or
when software is installed.
– CASE 13.1 i.LAN Systems, Inc. v.
NetScout Service Level Corp. (2002).
Page 242

93. Click-On Agreements
• A click-on agreement occurs when a
buyer, completing a transaction on a
computer, is required to indicate his or her
assent to be bound by the terms of an
offer by clicking on a button that says, for
example, ―I agree.‖ The terms may
appear on a Web site through which a
buyer is obtaining goods or services, or
they may appear on a computer screen
when software is loaded.

94. Click-On Agreements
• Suppose that you click on “I accept” in order to
download software from the Internet. You do not
read the terms of the agreement before accepting
it, even though you know that such agreements often
contain forum-selection and arbitration clauses. The
software later causes irreparable harm to your
computer system, and you want to sue. When you
go to the Web site and view the
agreement, however, you discover that a choice-of-
law clause in the contract specified that the law of
Nigeria controls. Is this term enforceable? Is it a
term that should be reasonably expected in an online
contract?
• YES

95. E-Signatures
• E-Signature Technologies.
– Asymmetric Cryptosystem. (smart card)
– Cyber Notary.
• State Law Governing E-Signatures.
– Uniform Electronic Transactions Act (1999).
• Federal Law.
– E-SIGN (2000) gives e-signatures and e-
documents legal force.
– CASE 13.3 In re Cafeteria
Operators, L.P. (2003).

96. Online Acceptances

97. The Uniform Electronic Transactions Act
• The UETA, which is a draft of legislation suggested to
the states by the National Conference of
Commissioners of Uniform State Laws (NCCUSL) and
the American Law Institute (ALI), removes barriers to e-
commerce by giving the same legal effect to electronic
records and signatures as to paper documents and
signatures. (40 States to date) (1999)
• The Uniform Electronic Transactions Act (UETA)
provides a definition of “electronic signature” (or e-
signature) that can be used by the states that enact the
UETA. The following comments accompanying the draft
of UETA 102(8) presented for the states’ adoption
explain the definition.

98. UETA
• Purpose is to remove barriers to
forming electronic commerce.
• E-Signature is ―electronic
sound, symbol or
process…associated with a record
and… adopted by a person with
intent to sign the record.‖
• UETA applies only to e-records and
e-signatures relating to a
transaction.

99. HIGHLIGHTS OF THE UETA
• The Parties Must Agree to Conduct
Transaction Electronically
• Parties Can “Opt Out”
• Attribution
• Notarization
• The Effect of Errors
• Timing

100. THE SCOPE AND APPLICABILITY OF UETA
• The UETA applies only to e-records and
e-signatures relating to a transaction (an
interaction between two or more people
relating to business, commercial or
governmental activities). The UETA does
not apply to laws governing wills or
testamentary trusts, the UCC (except
Articles 2 and 2A), the UCITA, and other
laws excluded by the states.

101. UETA and Federal E-SIGN
• E-SIGN explicitly refers to UETA.
• Provides that E-SIGN is pre-empted
by state passing of UETA.
• But State law must conform to
minimum E-SIGN procedures.
• In other words – if the State has
enacted UETA w/out
modification, State law will
govern……

102. THE FEDERAL E-SIGN ACT AND THE UETA
• If a state enacts the UETA without modification, the
E-SIGN Act does not preempt it. The E-SIGN Act
does preempt modified versions of the UETA to the
extent that they are inconsistent with the E-SIGN
Act. Under the E-SIGN Act, states may enact
alternative procedures or requirements for the use
or acceptance of e-records or e-signatures if (1)
those procedures or requirements are consistent
with the E-SIGN Act, (2) the state’s procedures do
not give greater legal effect to any specific type of
technology, and (3) if the state adopts the
alternative after the enactment of the E-SIGN
Act, the state law must refer to the E-SIGN Act.

103. Highlights of UETA
• Parties must agree to Conduct
Transactions Electronically.
– A party can ―opt out‖ of UETA terms.
• Attribution—process to ensure person
sending an electronic record is in fact
the real person.
• Electronic Errors.
• ―E-Mailbox‖ Rules.
– Dispatched when leaves control of sender.
– Received when enters recipient’s
processing system.

104. Uniform Electronic Transaction Act
The UEFA is enacted The EUFA is enacted
W/out Modification With Modification
State Law Governs if
The State’s procedures or
State Law Governs
The E-SIGN Act
requirements are consis.
Governs if:
with the E-SIGN ACT:
The Modifications
The State does not give
are inconsistent
priority to one type of
technology with the E-SIGN
ACT
The State Law was
enacted after the E-SIGN
ACT refers to it