Contracts I Main Outline PDF

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CHAPTER 1: Bases for Enforcing Promises Section 1: Enforceable Promises (contracts) Contract: offer, acceptance, consideration 1. §2: Contract - A promise for the breach of which the law gives a remedy. a. A promise is a commitment to act or refrain from acting in a specified way 2. Unilateral Contract - Promise for performance. Contract becomes enforceable when the promisee acts. a. I will pay you $X if you dig a ditch. 3. Bilateral Contract- Promise for a promise. Both sides have consideration immediately. a. I will promise to pay you $X if you promise to dig a ditch for me. 4. Manifestation of Intention – The external expression of intention as distinguished from undisclosed intention. A promisor manifests an intention if he believes or has reason to believe that the promise will infer that intention from his words or conduct. a. People interpret words differently b. Hawkins v. McGee: General doctor statements (you will get well) shouldn’t generally be viewed as an enforceable promise. Specific statements (I guarantee 100%) and conduct (constantly badgering the patient) are different especially if there is consideration (e.g. ability to practice skin grafts) 5. Express warranty – A promise made by the seller which induces the buyer to purchase the good a. Bayliner Marine Corp v. Crow: Boat brochure was an express warrant (but different specs than boat purchased – weight, motor). Advertisement (“Get you what you want”) is puffery not a warranty. b. Opinion/puffery (subjective) v. warranty (objective)

Section 2: Remedying a breach 1. Fundamental assumptions for contract remedies: a. Concerned with the relief of the promisee, not the punishment of the promisor. a. U.S. Naval Institute v. Charter: D sold soft cover books early than allowed. P can only recover amount of hard cover loss sales. b. If uncertainty in method to determine loss, use method that favors non-breaching party b. Punitive damages are not recoverable unless the conduct constituting the breach is a tort for which damages are recoverable. §355 (PROFESSOR STRESSED THIS) a. White v. Benkowski: D purposes shut off well in breach of contract. Can only recover actual damages. c. Relief should be compensation rather than specific performance (unless the ‘thing’ is unique) 1|Pa ge

d. Damages for emotional disturbance §353 – Not recoverable unless breach causes bodily harm or the breach is of a kind that serious emotional disturbance was particularly likely to result. a. No recovery for being disappointed car sale fell through. e. Attorney fees generally not recoverable unless the contract specifically states attorney fees will be payable 2. Three Types of Damages (PROFESSOR STRESSED THIS): a. Expectation: “Compensatory” Puts P in position they would have been in if the contract wasn’t breached. Generally biggest. Appropriate more for commercial contracts. b. Reliance: Puts promisee in position they would have been in if the contract never happened. Includes payments to 3rd parties. c. Restitution: Reimburses promisee for all costs/expenses that you have given to the promisor. (Getting back only what you paid out to the breaching party). Subset of Reliance. d. Sullivan v. O’Connor: Nose job – 3 surgeries (2 planned, 1 to fix). Reliance better method to measure damages. Expectation - too high relative to what doctor was paid. Restitution too low. Pain & suffering for 3rd surgery allowed bc unexpected. 3. Economic Remedies: a.“Efficient breach hypothesis”- The promisor breaches when her gain from breaching exceeds the amount of damages she will have to pay to leave the promisee just as well off as he would have been had the promisor performed.

Section 3: Consideration as a Basis for Enforcement 1. Fundamentals of Consideration: (A bargained-for exchange) – The formation of a contract requires a bargain in which there is a manifestation of mutual assent to exchange and a consideration. 2.

Contract: A promise which is made enforceable by consideration. a. §71- Requirements of Exchange: 1. To constitute consideration, a performance or a return promise must be bargained for 2. Bargained for - A performance or return promise is bargained for it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise i. Ask what is the promisor seeking in exchange for his promise? 1. Sheriff promises to pay someone $5,000 to bring in criminal. Person promises to bring in a criminal. No contract because the sheriff wasn’t seeking a return promise. He was seeking performance. ii. Sheriff post reward. Bounty hunter brings in criminal unaware of reward. Performance wasn’t bargain for. (promisee wasn’t seeking reward) 1. $1 for $100K land (promisor isn’t seeking $1) 3. The performance may be: 2|Pa ge

i. An act other than a promise, or ii. A forbearance (legal determinant) 4. The performance or return promise may be given to the promisor or some other person. It may be given by the promisee or by some other person. b. §74- Forbearance of a claim that proves to be invalid is NOT consideration unless: i. ii.

The claim is doubtful because of uncertainty as to the facts or the law; or Even if invalid, the surrendering/forbearing party believes in good faith the claim to be valid. a. Good faith – Honest belief. You reasonable believed you had a claim b. Dyer V. National By-Products- Leg lost on the job, is laid off, and promised lifelong employment in return to drop his claim. He didn’t have a valid claim bc worker’s comp was his only remedy. Still valid consideration bc he believed in good faith he had a valid claim.

c. §81- Consideration as motive: i. ii.

If what is bargained for doesn’t induce the contract, still a contract If a promise doesn’t induce a performance or return promise, it is still a contract. a. Man promises to paint picture of famous person and famous person promises to pay him $500. Even if the primary motive of painter is that he will be famous by painting portrait (rather than $500) still enforceable contract because his promise to paint is induced in part by the $500. Forbearance from a legal right is sufficient consideration

iii. i.

Hamer v Sidway: - Nephew forbore his legal right to drink and smoke. Doesn’t matter promisor didn’t receive anything. Promisee gave up something.

ii.

Family contracts usually not enforceable, but P forbeared → enforceable (legal detrement)

d. Gratuitous Promise: A promise not enforceable because it lacks consideration e. Contract law doesn’t question the sufficiency of the consideration 1. §79- If consideration is met there is no additional requirement of (a) a benefit to promisor or a detriment to the promisee or (b) equivalence in the values exchanged or (c) mutuality of obligation. 3. Requirement of exchange: Action in the past a. Past performance is not valid consideration a.

Feinberg v. Pfeiffer Co. – Woman worked for company. After 25 years, company voted to give her a pension for her past performance. Past performance doesn’t constitute consideration.

b. NY – Allows past performance as consideration provided it is expressly stated in writing and proved it was performed.

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b. Doctrine of Moral Obligation- A moral obligation is rarely sufficient to form a contract, but can be. In these situations P did something for the D and tries to enforce with no consideration (exchange) though. (multiple choice – no consideration, still enforceable under doctrine of MO) a. Mills v. Wyman- P cares for D’s son, who dies. D promises to reimburse him for expenses D reneges. No consideration, no mutual inducement (P didn’t pay bills because of D’s promise), past act. Not enforceable. b. Webb v. McGowin- P jumped off rail to catch wood block that would have killed D. P was permanently paralyzed by saving D’s life . D pays for several years until his death. D’s estate wants to stop. Enforceable under the doctrine of MO. c. Harrington v. Taylor- D’s wife attempts to decapitate D with axe, P steps in the way and his hand gets mangled, but he saves D’s life. P promises to pay for his hand. P renegs. Not enforceable. i. Difficult to reconcile Webb and Harrington. ii. Best case for enforcement of promise based on moral obligation: 1. Promisor received a large benefit 2. Promisee suffered a large detriment 3. Promisor kept promise for years. d. NY Gen. Ob. §5-1105: Remember NY allows past consideration to be valid consideration provided it is expressly stated in writing and it was performed. Professor stressed this e. Promises specifically enforceable under the Doctrine of Moral Obligation i. Promise to pay a debt no longer enforceable due to the statute of limitations ii. Promise by adult reaffirming a promise made when the promisor was a minor iii. Promise to pay a debt discharged in bankruptcy (but unclear if still valid given the Federal Bankruptcy Code) c. Family Promises – Generally not enforceable because they aren’t given in a bargained for exchange. There is no consideration. Professor stressed this. a. Kirksey v. Kirksey: Uncle says if you move down here, I will let you live on my land. No bargained for consideration. Just a conditional gift. 4. The Requirement of Bargain a. At-will Employment and non-competes a. Lakeland v. Columber: P works for D for years. D makes him sign NC. Continued employment valid consideration to uphold a non-competition agreement with an atwill employee. i. Courts split on this view. Some look to how long he was employed after the NC, raises, promotions, etc. Some courts view nothing has changed except the NC. 4|Pag e

ii. Consider NCA’s location duration and level of employee to determine validity b. Employee hand-books a. Usually enforced as contractual obligations even though there isn’t a bargained for exchange. b. Specific statements in handbook are enforced (vs. general statements which aren’t). i. You can only be fired for cause vs. you will have a long career here. c. Change handbook – some courts say you need additional consideration. c. Rewards i.

There must be knowledge of the reward in order to collect (offer/acceptance)

ii.

No Consideration if you did the act without being persuaded by the promise.

5. Promises as Consideration: What constitutes a promise? a. Conditional: i. The promise is conditional if its performance will become due only if a particular event (the condition) occurs. b. Gratuitous promise v. transfer i. Promise – Promise given for nothing except altruism – not enforceable ii. Transfer – Actual transfer has occurred – can’t be taken back c. Illusory promise i. Cannot be used as valid consideration even if it was bargained for. ii. (§77)-Words of the promise that make the performance optional is not a promise, therefore cannot constitute consideration. 1. Strong v. Sheffield: Niece guaranteed debt of husband. Uncle promised he won’t collect until he wants it. Illusory promise. No consideration because he could collect at any time. He didn’t promise anything. 2. Satisfaction Clause: (Mattei v. Hopper)- P wants to purchase land from D to build mall. Subject to P’s satisfaction with leases. D claims illusory promise because P could pull out of the agreement if no satisfactory leases. Court holds the satisfaction of P is a provision in the contract, doesn’t void. a. Satisfaction clauses do not negate the agreement if it is asserted in good faith and it is reasonable UCC §1-201 i. Test #1: Reasonable person standard – If the standard is the “absolute and sole discretion” of the individual then it is illusory (problem set #3) ii. Test #2: Fancy, taste, or judgement situations – P must act in good faith 1. Good faith UCC §1-201(20): Honesty in fact and the observance of reasonable commercial standards of fair dealing 5|Pag e

3. Output, Requirements and Exclusive Dealings: a. Output contract – Buyer will buy all that the seller produces b. Requirements contract – Seller will sell an amount equal to all of the buyer’s requirements c. Structured Polymer v. Zoltek Corp: D tried to argue the requirement clause made the contract enforceable (illusory promise) because P could just not buy. Requirement clauses aren’t illusory because the buyer must act in good faith. d. UCC §2-306(1): A term which measures the quantity by the output of the seller or the requirements of the buyer means actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or, if no stated estimate, to any normal or otherwise comparable prior output or requirements may be tendered or demanded. Professor stressed d. Implied Promises i. Implied promises can constitute consideration ii. Wood v. Lucy: P contracted to exclusively place D’s indorsements on the designs of others. D breached by cuting her own deal. D argued P didn’t promise to do anything. There wasn’t an express promise, but an implied promise when you consider the agreement as a whole (required to pay half the profits, provide monthly accounting for expenses, etc.)

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Section 4: Reliance as a Basis for Enforcement 1. Promissory Estoppel: Restatement §90: The promise lacks consideration but can nonetheless be enforceable if: a. The promisor should reasonable expect it to induce action or forbearance from the promisee and b. The promisee does act or forbear and c. Injustice can be avoided only by enforcement of the promise. d. It must be reasonable for promisee to rely on the promise i. Ask if the promisee acted reasonably 2. Damages usually reliance damages, but courts can be flexible and provide expectation damages as justice requires: a. Ricketts v. Scothorn: Grandfather offers $ to granddaughter because he doesn’t think she should have to work, she relies/quits job, he dies, estate refuses to pay. He induced her to quit. Enforceable. b. Feinberg v. Pfeiffer: Past performance but estoppel triggered when she quit job early because of offer, injustice b/c of old age, can’t find another job. c. Wright v. Newman: Fake dad case. Promised to support child. PE to prevent injustice (could have had relationship with real dad). Damages – expectancy because reliance too hard to calculate. d. Cohen v. Cowles: P gives dirt to newspaper. D promises to keep him anonymous but publishes his name any ways. PE expectation damages to preserve justice. e. D&G v. Bacardi: D promises to remain distributor. P turns down buyout offer. D same day says it will not be distributor. Similar to at-will – no consideration. P sells for much lower price. PE

Section 5: Restitution as an Alternative Basis for Recovery 1. Quasi-contracts, Implied-In-Law Contracts, Constructive Contracts – a. §344 - Liability in restitution derives from the receipt of a benefit whose retention without payment would result in the (1) unjust (2) enrichment of the defendant at the expense of the plaintiff. b. One who acts officiously in conferring a benefit can’t get restitution from the recipient. i. Band comes over to your table and plays music. 2. Cotnam v. Wisdom: Man unconscious. Doctor provides aid. D dies. P sues for services performed. Quasi contract. a. Medical professional who performs medical services for the protection of life of another is entitled to restitution for services performed. Charges must be reasonable.

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b. NY rule (Professor stressed): Has a similar rule but the charges must be reasonable in light of the particular circumstances of the individual (including the ability to pay) 3. No unjust enrichment (restitution) if another remedy is available. (Callano v. Oakwood). Shrub case. Can’t get restitution from D (home builder) when you could sue estate of the person you contracted with to install the shrubs. 4. Contracts between family members are rarely upheld by restitution a. Normal and expected activities of a relationship are not eligible for restitution. Cooking, cleaning. b. Extraordinary circumstances can give rise to restitution. i.

Pyeatte v. Pyeatte ← husband/wife law school case. It was so one sided it could be enforced. Restitution only for tuition, not living expenses b/c that benefited them both.

CHAPTER 2: Creating Contractual Obligations Section 1: The Nature of Assent 1. Mutual Assent: For a contract to be formed, the parties must reach “mutual assent” – they must both intend to contract and they must agree on at least the main terms of their deal. 2. Objective standard: If his words and acts, judged by an objective reasonable standard manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind. a. Lucy v. Zehmer –D offered to sell land to P. D argues he was joking. All of D’s outward actions indicate a sale. P wins. There was a manifestation of mutual intent. a. §3: Agreement Define; Bargain Defined- An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. b. §18: Mutual Assent: Each party must make a promise or render a performance 3. Intent to be bound a. No intention → no promise → no contract b. Specht v. Netscape: User agreement and arbitration clause hidden from plain view. No bound by terms a reasonable person wouldn’t be aware of. a. Rule: An offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous provisions of which he is unaware. 4. Mutual Assent: For a contract to be formed, the parties must reach “mutual assent” – they must both intend to contract and they must agree on at least the main terms of their deal. a. No need for formal writing if there is mutual assent. (i.e., can agree orally) b. Handshake deals can be enforceable c. Preliminary negotiations (§26): Manifestation of willingness to enter into a bargain isn’t an offer if OE knows the person making it doesn’t not intend to conclude a bargain until he has made a further manifestation of assent. 8|Pag e

d. Contracts when written memorial is contemplated (§27): i. If they agree orally to all of the terms and memorialize contract later – enforceable when they orally agree ii. If party knows or has reason to know the other party regards the agreement as incomplete then no contract until it is written Section 2: The Offer 1. §24- “Offer Defined”, the manifestation of willingness to enter into a bargain, made as to justify another person in understanding that his assent will conclude the bargain. (KNOW) 2. Distinguish offer vs. invention to make an offer/negotiate a. Owen v. Tunison: P wants to buy D’s property. P asks “Will you sell for $6,000?” D says he cannot sell for less than $16,000. P accepts and tries to hold D to contract. D wins. Merely an invitation to make an offer. b. Harvey v. Facey: Will you sell X? What is the lowest price? A. $900. D only answered Q2. Stating minimum price. Didn’t agree to sell to P (Q1). 3. Offers made in jest: No offer is the OE knows or should know it is made in jest. 4. Price quotations are generally not offers. a. If PQ were offers and everyone accepted, it would be a problem bc seller has limited quantity b. Price quotes can be offers if very specific – price + specific quanity. i. Fairmont Glass v. Crunden-Martin: What is the lowest price for 10 car loads? ii. The use of the term “offer” vs. “quote” can have some bearing, but not always. iii. No K if the OR reserves the power to close the deal (e.g., orders must be approved by home office) 1. Remember – in order to be an offer, it must give the OE the power of acceptance. 5. Advertisements are typically not offers, but invitations. They generally don’t contain sufficient words of commitment a. They can be offers if they are (1) clear, (2) definite, (3) specific. b. Lefkowitz – First come, first serve for black lapin. Don’t sell because house rule only sells to women (not in ad). P wins. 6. Construction Contracts- Contractor/Subcontractor a. Unilateral mistake in offers in construction contracts a. Elsinore v. Kastorff: D (general con) made computational error in bid. D wins bid, P refuses to back out. D wins because: i. It was an excusable...