Contracts I Outline PDF

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contracts outline covering all of the class lectures for the entire semester...

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Contracts I Outline Fall 2007

Text: Studies in Contract Law, Sixth 6th Edition, Murphy, Speidel, Ayres (2003)

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When approaching a contracts question, first ask what is the applicable law? o If for sale of goods, look at UCC o Otherwise look at the common law (case law, then R2k) Afterward, look at formation of the contract o Offer o Acceptance o Consideration o Intent to be bound o Promise Then look at the terms of the contract Then look at performance Then look to see if performance excused in any way

Promise The Restatement (2nd) on Promise, Agreement and Contract Defined I.  §1 - A contract is a promise for the breach of which the law gives a remedy, or the performance law recognizes as a duty.  §2 – A promise is manifestation of intent to act or forbear, made so promisee understands a commitment has been made.  §3 – An agreement is a manifestation of mutual assent. A bargain is an agreement to exchange promises or performance.  § 4 - A promise may be oral or written, or may be inferred from conduct.  §5 – (1) a term is part that relates to a specific matter II. UCC - Definitions a. §1-201 (3) - "Agreement" –the bargain of the parties as found in their language or by other implications from custom or conduct. b. §1-201(11)"Contract" means the total legal obligation of the parties. c. §2-103 – (1) Buyer - person who buys or contracts to buy goods, (2) Good faith in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade, (a)"Receipt" of goods means taking physical possession of them. (b)"Seller" means a person who sells or contracts to sell goods. d. §2-106(1) – "contract" and "agreement" limited to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price. A "present sale" means a sale which is accomplished by the making of the contract. e. §2-102 – UCC article 2 applies to transactions in goods f. §2-105 – Definitions i. "Goods" – are all movable things, other than money, investment securities, and things in action. ii. "Lot" means a parcel or a single article which is the subject matter of a separate sale or delivery, whether or not it is sufficient to perform the contract. iii. "Commercial unit" means such a unit of goods as by commercial usage. Can be a single unit, but also can be a set of articles if necessary. g. §2-104. Definition of merchant – a person who deals in goods, or by his occupation holds himself to have knowledge or skill of specific goods or practices h. §2-209(1) an agreement modifying a contract needs no consideration to be binding.

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Contract is an enforceable Promise (not all promises are enforceable) a. Bailey v West– No implied in fact contract b/c no agreement since he didn’t know who he was making contract with; no intent from D; no previous dealings. Implied in fact Contract formed by manifestations of assent, other than language. Intention can be proved by words and/or conduct. No quasi contract. Quasi contract is not a contract. Created by courts to avoid unjust enrichment (to do justice), although the parties did not intend to be bound. Permits plaintiff to recover the benefit the defendant rec’d. It requires: i. a benefit conferred upon defendant by plaintiff (D didn’t want horse) ii. appreciation by defendant of such benefit, and (D didn’t know) iii. retention by defendant of such benefit under circumstances that it would be inequitable to retain benefit without payment of value thereof. (P suffered detriment, but P rec’d no benefit). iv. Generally, there is no legal duty to pay compensation for performance rendered without request thereof. (D didn’t request, P volunteer) b. Bolin Farms v Cotton – Parties intended to be bound. Rest §2 says A promise is a manifestation of intention. Intent to contract is required to enforce a contract. The contract's validity and enforceability was upheld, even if there are unforeseen events (since parties are well-informed of all risks when entering into fwd contracts).

Consideration Elements of Consideration I. Bargained For and Given in Exchange – i. Detriment induces the promise (promisor bargains for detriment in exchange for promise) ii. Promise induces a detriment (promisee acts or forbears b/c of the promise, there must be knowledge of the promise) iii. Legal Detriment to the promisee or benefit to the promisor.  Restatement §17 – Formation of a contract requires a bargain, where there is a manifestation of mutual assent to the exchange and a consideration.  Restatement §71 – To constitute consideration, a performance or return promise must be bargained for. This is done only if it is sought by the promisor in exchange for his promise, and is given by the promisee in exchange for that promise.  Restatement §75 – a promise is consideration, but only if the performance promised would be consideration. iv. Langer v. Superior Steel Corp – Consideration here, not a gift; the promise ($100/mo) induced the detriment (forbears from legal right to work from competitor). So, there was a detriment to promisee and benefit to promisor (former employee wouldn’t work for competitor). v. Bogigian v Bogigian - No consideration b/c the signed release was not bargained for (must have been offered by one party and accepted by another – the signor didn’t know what she was signing). b. Gift – not enforceable because there is no consideration. i. The act or forbearance by the promisee must be a benefit to the promisor – it’s not enough that the promisee’s incurs detriment; the detriment must be the

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price of the exchange. If the promisor’s motive was to induce the detriment, it will be treated as consideration. 1. Kirksey v. Kirksey – Though there was detriment to promisee (giving up her land & moving), her detriment gives nothing beneficial to the promisee, which is a condition for consideration. (Could use promissory estoppel here, but the theory was not used at the time.) ii. The benefit to the promisor doesn’t have to be an economic benefit. Peace of mind, or gratification that promisee did or didn’t do something is sufficient. 1. Hamer v Sidway (vices) – Consideration here, not a gift; the promise ($5k) induced the detriment (forbears from legal right - vices). So, there was a detriment to promisee and benefit to promisor (satisfaction). Promisor’s benefit doesn’t have to be an economic benefit, as long he got what he wanted. iii. Mixed Motives 1. Thomas v Thomas (dying wish) – There was a promise (fulfillment of brother’s dying wish for widow to have home), and there was a consideration (she paid £1/yr & kept home in good shape). The motive was for it to be a gift, but it didn’t matter because there was a valuable consideration, even if it was not bargained for. a. Restatement § 81 – Consideration as Motive or Inducing Cause: (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise. iv. UCC §2-203: Seal inoperative. The seal is no longer used to enforce a contract/writing, just because it had a seal affixed. The writing/seal would still have to show consideration. Legal value – that which is bargained for must constitute a benefit to the promisor or a detriment to the promisee. a. Adequacy of Consideration – If there is consideration courts will normally not look into the adequacy of it. Freedom of contract; laissez-faire attitude (Peppercorn Theory). i. Haigh v. Brooks (paper) – There was a promise (to pay £9995), and CS (paper of guaranty). There was a bargain, and thus it shows D had value assigned to the paper, that he would bargain for it. Value of what is exchanged is established by the value the party places on it; this is sufficient for consideration. ii. Apfel v. Prudential-Bache Securities, Inc. (novelty) – There was a promise (P to pay for the technique) and there was consideration (D telling them the technique). Showing of novelty is not required to validate the contract for purchase of idea, only that the idea is valuable. There was a bargain, and P got value out of it. iii. Fiege v. Boehm (baby mama) – There was a promise (to pay childbirth costs) and consideration (forbearance from pursuing legal claims). Forbearance from pursuing legal claims counts as valuable consideration, even if the legal claims are

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no longer valid, as long as at time K was made, there was good faith & reasonable belief that she could pursue those legal claims. b. However, courts may still look into the adequacy of consideration if they think there is an objective disparity. The purpose of consideration is to police unfair bargaining - to ensure that promise has not been extracted by unfair illegitimate means. i. Jones v. Star Credit Corp. (freezer) – The CS (the price paid for the freezer), was unfair. K unconscionable b/c unequal bargaining power. Under UCC-2302, court may refuse to enforce K if unconscionable. 1. § 2-302. If K unconscionable at time it was made, court may refuse to enforce it, or part of it, or limit its application so as to avoid an unconscionable result. Purpose of this provision is to prevent oppression and unfair surprise. It is a defense to enforcement. ii. Token consideration – where the consideration is something minimal, or of no value, courts say it indicates that this was a gift. iii. Nominal or sham consideration – where the consideration was $1 or sum insignificant sum. Many times, this amt is not paid, and never intended to be paid. 1. In Re Green (illicit) – Promise (to pay per K), made in consideration of (1) release from illegal promise of marriage, (2) for past illicit relationship (past CS no good), (3) $1 CS (nominal), and (4) other CS (didn’t exist). Although parties intended to be bound & make valid agreement, if there’s no valid CS, there’s no K. a. Restatement §71 Comment(b) “[…] a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal Preexisting Legal Duty – A preexisting, enforceable duty cannot count as consideration for the purposes of contract formation (and is thus not binding) a. UCC §1-107 - Waiver or Renunciation of Claim or Right after Breach. - Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. i. Levine v. Blumenthal (sweep) – There was a K. There was a new promise (landlord to accept less rent), but no consideration for the new promise (like sweeping); there was a preexisting duty from original K to pay what they did pay. A new or different CS is necessary to make a change to an original contract binding; it is immaterial how slight the change is ii. Alaska Packers’ Association v. Domenico (salmon) – There is a K; then a new promise is made, but no CS, b/c there was a preexisting duty from original K. b. Existing debt - payment of smaller sum than what is due is not sufficient as consideration for relieving the debt (if debt is $1k and agreement to only pay $500, this is not consideration, debtor can still enforce for $1k). However, if the consideration is in any way new or different, then ok (like paying earlier). c. Modification i. Angel v Murray (garbage) – There is a K. New promise due to unforeseen events, but no new CS. R2K 89 – modification ok. Modern trend recognizes necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance

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of a contract, even though there is no CS for the modification, as long as parties voluntarily agree, it is fair, and made in good faith. 1. Restatement §89 – Modification of K - A Promise modifying a duty under a contract not fully performed on either side is binding a. If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or b. To the extent provided by statute; or c. To the extent that justice requires enforcement in view of material change of position in reliance on the promise. d. 5 ways to avoid preexisting duty rule: i. Terminate old K; make new K ii. New or additional CS iii. UCC § 2-209 - no CS needed to if waived iv. R2K § 89 - if the modification is fair, it's enforceable v. Full performance of modification, complete transfer (including payments already paid) Mutuality of Obligation – Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory. An agreement where one party has been bound but the other has not lacks mutuality, since at least one of the promises is “illusory.” Without mutuality of obligation there is no consideration because consideration is a promise bargained for and given in exchange for a promise. Only applies to bilateral, not unilateral contracts. i. Rehm-Zeiher Co. v. Walker Co. (whiskey, discretion) - K to sell goods (whiskey). Discretion up to P if for any “unforeseen reason” they couldn’t complete the K, & therefore not liable for breach. If one party is not bound to the contract because of the terms of its agreement, then the contract has no mutuality of obligation, and is therefore not enforceable. b. Mutuality can still be found to exist in certain situations even though the promisor has some choice or discretion. Here, CS exists. Promisor is suffering a legal detriment; he has parted with a legal right to buy (or sell) the goods he may need (or manufacture) from (or to) another source. i. Requirements contracts - promises to buy all that I will require ii. Output contracts - promises to sell all that I manufacture 1. If you fail to state qty under the UCC (2-201) then the contract will fail for indefiniteness; the exception is requirements and output contracts. However, the quantities subject to these contracts may not be unreasonably disproportionate to what is expected. iii. McMichael v. Price (sand, requirement K) –Buyer will buy all that seller can sell, provided good quality (output K). Although there is some discretion, buyer has a good faith obligation so would still be liable for breach. If both parties can be held liable for breach of contract, then mutuality of obligation exists and the contract is enforceable (UCC §2-306(2). 1. UCC § 2-306 (2): A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

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iv. Wood v. Lucy, Lady Duff-Gordon (fashions) – K where P has “exclusive right” to make profit for D. K doesn’t specify P’s duties. A contract does not necessarily have to explicitly state the duties of the parties that are needed for mutuality, as long as you can imply a duty of good faith from terms of the contract (exclusivity), and from the parties’ actions (UCC §2-306(2)). v. Omni Group, Inc. v. Seattle-First National Bank (Feasibility report) – K where sale of property conditional on a P’s satisfaction based on feasibility report. Although K conditional on P’s discretion, Omni is acting in good faith (can only cancel K if not satisfactory- can be determined through evidence), if not will be in breach. Making a promise dependant on a condition does not necessarily make it illusory (unless discretion is absolutely reserved to promisor), because the promisor is assumed to be acting in good faith. Moral Obligation: Promise plus Antecedent Benefit - Past or Moral Consideration is not sufficient to satisfy the “bargain” requirement. It was not given in exchange for the promise when made. a. Restatement §86 – (1) promise made for past benefit (CS) binding only to extent necessary to prevent injustice, (2) A promise is not binding if (a) intended to be a gift or promisor hasn’t been unjustly enriched, or (b) to extent that value is disproportionate to the benefit. b. Mills v. Wyman (sick son) – Father only has moral obligation to pay for, but no legal duty. Father had only a moral obligation to pay, no legal duty. Moral obligation in the absence of material benefit to the promisor is not sufficient consideration. i. A moral obligation may only form consideration for an express promise in three cases (none of these were the case here, so cannot be used): 1. Debts barred by statute of limitations 2. Debts incurred by kids (son was 25) 3. Debts previously discharged by bankruptcy c. Manwill v. Oyler (free land) – P paid for D’s land, and gave D land. P later promised to pay. Past or moral CS not sufficient to support a K, and no other CS existed. Also, P failed to prove he reasonably expected to be compensated, so it looks like a gift. d. Harrington v. Taylor (my hand! axe) – P butted her nose (or hand) into domestic fight. Injured hand. D promises to pay P. A voluntarily performed humanitarian act is not a legally recognized consideration for a later promise. e. Webb v. McGowin (hero employee) – P saves employer, who later promises to pay P. A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. i. Use of the “material benefit” rule: if you get a direct antecedent benefit, it is sufficient consideration for a subsequent agreement to pay for the service. ii. Direct material (antecedent) benefit + moral obligation + Subsequent promise = consideration. f. Exceptions: i. If a past obligation would be enforceable except for some technicality (like statute of limitations), the courts will enforce a new promise if it is in writing or has been partially performed.

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ii. If acts have been previously performed by promisee, at the promisor’s request, a new promise will be enforceable. Also, sometimes unrequested acts ok if rendered during an emergency iii. Most courts will apply the terms of the new promise, not the original. VI.

Promissory Estoppel: Promise plus Unbargained-For Reliance – Promise w/ no CS, but reliance. The greater the strength of commitment by promisor, the greater the reliance of the promisee. a. Restatement §90 – (1) a promise is enforceable to the extent necessary to prevent injustice if: 1. The promisor would reasonably expect to induce action or forbearance 2. the promisee reasonably relied on the promise; and 3. the promise induced such action or forbearance (2) A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance. b. Ricketts v. Scothorn (grandfather) – Promise to pay induced P to quit her job. A promise can be enforceable without consideration, if the promisee has acted in reliance to their detriment. c. Feinberg v. Pfeiffer Co. (sick old lady) – Promise to pay pension (gift) for past loyalty. Induces detriment to P (she retired early & didn’t look to work anywhere else, then she got sick & couldn’t work). Reasonable reliance, promissory estoppel. d. Grouse v. Group Health Plan, Inc. (interview) – The promise (for a job) induces reliance (P quit job; declined another; lost $). Promissory estoppel – P’s reliance reasonable & foreseeable, and induced detriment. Note: “at will” so he could be fired at any time, but employer must have given him an opportunity. e. Cohen v. Cowles Media Co. (candidate) - Promise of confidentiality induced P’s disclosure. EP. The reporters expected to and did induce Cohen’s ...