Michigan Law School 1L Study Guide for Contracts

Michigan Law School 1L Study Guide for Contracts

I. Formation of Contracts

A. Offer
– An offer is a manifestation of willingness to enter into a bargain, made in such a way that another person understands their assent to the bargain is invited and will conclude it. (Restatement (Second) of Contracts § 24)
– Not all statements of price or intention are offers; advertisements are typically treated as invitations to negotiate.

B. Acceptance
– Acceptance is a manifestation of assent to the terms of the offer in a manner invited or required by the offer. (Restatement (Second) of Contracts § 50)
– Mirror Image Rule: Acceptance must be on the exact terms of the offer without any modifications.
– Battle of the Forms: Under UCC 2-207, the mirror image rule is relaxed for the sale of goods, and additional or different terms can become part of the contract under certain conditions.

C. Consideration
– Consideration requires that there be a bargained-for exchange where each party incurs a legal detriment or confers a legal benefit. (Currie v. Misa)
– Past consideration is not valid, and pre-existing duties cannot serve as consideration for a new promise unless there is a new or different consideration or the obligation is to a different party.

D. Capacity
– Parties must have the legal capacity to enter into a contract, which excludes minors, mentally incapacitated persons, and intoxicated persons from being bound.

E. Legality
– The subject matter of the contract must be legal; contracts for illegal purposes are void.

II. Defenses to Formation

A. Mistake
– Mutual mistake occurs when both parties share an incorrect belief about a basic assumption on which the contract is made and can lead to contract avoidance. (Sherwood v. Walker)
– Unilateral mistake occurs when only one party is mistaken about a basic assumption on which the contract is made and generally does not prevent contract formation unless the other party knew or had reason to know of the mistake.

B. Fraud and Misrepresentation
– Fraud occurs when one party makes a false representation of a material fact, intending to deceive the other, and the other party relies on the misrepresentation to their detriment.
– Non-fraudulent misrepresentation can also be a ground for rescinding a contract if it is material and justifiably relied upon.

C. Duress and Undue Influence
– Duress involves a wrongful threat that leaves the victim with no reasonable alternative but to enter into the contract.
– Undue influence involves taking advantage of another’s mental, moral, or emotional weakness to get them to enter a contract.

D. Unconscionability
– A contract or term is unconscionable if it is so one-sided that it shocks the conscience. (Williams v. Walker-Thomas Furniture Co.)
– Courts look for both procedural and substantive unconscionability.

III. Interpretation and Parol Evidence Rule

A. Interpretation
– The goal of contract interpretation is to determine the parties’ intent and to give effect to their mutual promises.
– Ambiguities can be interpreted against the drafter (contra proferentem).

B. Parol Evidence Rule
– The parol evidence rule limits the evidence that can be used to interpret, explain, or add to a written contract.
– Exceptions exist for fraud, duress, mistake, or to resolve ambiguity.

IV. Performance and Breach

A. Conditions
– Conditions are events that must occur before a party’s performance obligation is triggered. They can be express or implied.

B. Performance Standards
– Substantial performance is generally sufficient to entitle the performing party to payment, minus any damages for defects in performance. (Jacob & Youngs v. Kent)
– Perfect tender rule: Under UCC 2-601, a buyer has the right to reject goods that fail in any respect to conform to the contract.

C. Material Breach
– A material breach by one party can excuse the counter-performance by the other party. (Restatement (Second) of Contracts § 237)

V. Remedies for Breach of Contract

A. Damages
– Expectation Damages: The default remedy, putting the injured party in the position they would have been in had the contract been performed. (Hawkins v. McGee)
– Reliance Damages: Reimburse the injured party for costs incurred in reliance on the contract.
– Restitution: Restores to the injured party the benefit conferred on the other party.

B. Specific Performance
– A court may order specific performance, compelling a party to fulfill their contractual obligations, when damages are not adequate to remedy the harm.

C. Limitations on Remedies
– Duty to Mitigate: The non-breaching party has a duty to take reasonable actions to mitigate their damages.
– Liquidated Damages: Agreed upon damages in case of breach, enforceable if they are a reasonable forecast of compensatory damages and not a penalty.

VI. Third-Party Rights

A. Assignment of Rights
– Contractual rights can be assigned to third parties unless the assignment would substantially change the obligor’s duty or risk.

B. Delegation of Duties
– Contractual duties can be delegated to third parties unless the nature of the contract involves special trust in the obligor or the performance is unique.

C. Third-Party Beneficiary
– A third-party beneficiary can enforce a contract if it is clear from the contract that there was an intention to benefit the third party.

VII. Case Law

Sherwood v. Walker (1887) – Mutual Mistake
– Issue: Can a contract for the sale of a cow believed to be barren be rescinded when the cow is later found to be fertile?
– Rule: A mutual mistake as to a basic assumption on which the contract was made can lead to contract avoidance if the mistake has a material effect on the agreed-upon exchange.
– Analysis: The parties contracted based on the assumption that the cow was barren. The fertility of the cow was a basic assumption of the contract and materially affected its value.
– Conclusion: The contract could be rescinded due to the mutual mistake.

Hawkins v. McGee (1929) – Expectation Damages
– Issue: What is the measure of damages for breach of a contract to provide a successful medical operation?
– Rule: Expectation damages should put the injured party in the position they would have been in if the contract had been performed as promised.
– Analysis: The doctor guaranteed a successful operation, which created an expectation that the patient would have a fully functional hand.
– Conclusion: The doctor’s breach warranted damages based on the difference between the value of a good hand and the value of the hand as it existed after the unsuccessful operation.

Williams v. Walker-Thomas Furniture Co. (1965) – Unconscionability
– Issue: Is a contract unconscionable when a buyer does not understand the terms and the terms are extremely one-sided?
– Rule: A court can refuse to enforce a contract or any clause of a contract if it finds that the contract was unconscionable at the time it was made.
– Analysis: The contract contained a cross-collateral clause that was not explained to the buyer, who was uneducated and did not understand the implications, making the contract grossly one-sided.
– Conclusion: The court found the contract to be unconscionable and refused to enforce it.

Jacob & Youngs v. Kent (1921) – Substantial Performance
– Issue: Is a contractor entitled to payment when the completed work deviates from the contract in an insubstantial way?
– Rule: A party that has substantially performed in good faith is entitled to the contract price, minus any damages resulting from the deviation.
– Analysis: The contractor built a house but used a different brand of pipe than specified. The court viewed the deviation as insubstantial since it did not affect the value or use of the house.
– Conclusion: The contractor was entitled to payment, less any damages the deviation may have caused.

This study guide covers essential contract law concepts for first-year law students at Michigan Law School. It is important to review these concepts in the context of Michigan law, as state-specific nuances may apply. It is recommended to analyze additional cases from Michigan courts where applicable and to cross-reference these principles with the Michigan Compiled Laws and the Uniform Commercial Code (UCC) as adopted in Michigan, especially for the sale of goods.

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