Contracts Outline (2) with battlesheet PDF

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Professor Sharfman...

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Introduction Material  

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An express contract may be oral or written and consists of an offer, acceptance, and consideration Implied in-fact is inferred as a matter of reason and justice from the acts, conduct, or circumstances surrounding a transaction, rather than one formally or explicitly stated in the words. As with express contracts, the source of the obligation in implied-in-fact contracts is the manifested intent of the parties o Implied-in-fact contracts require one or more of the terms of the contract to be inferred from the conduct of the parties  court looks to the parties’ conduct Quasi-contract is implied in law: an obligation imposed on a person not because of his intention to contract, but because the circumstances between the parties are such as to justify in one party a right and in the other a duty…prevents unjust enrichment Formation question – one or both parties promise some performance o The promise created the obligation and determines its scope o “A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty Forward Sales Contract – limits the seller’s risk and shift much of the risks to the buyer Bilateral Contract – promise for a promise exchange Unilateral Contract – offer that expressly requires performance as the only possible method of acceptance

Howard E. Bailey v. Richard E. West   

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Plaintiff wanted recovery from defendant for taking care of a horse Court ruled there was not a contract implied-in-fact and there was not a quasi-contract Essential element of an implied-in-fact contract are mutual agreement and intent to promise and there was neither of that between P and D o There needs to be a meeting of the minds o Not made in words; implied from the facts of the case Elements of a quasi-contract o Benefit conferred upon D by P o Plaintiff rendered such performance with the exception of being paid o Plaintiff was not acting as a volunteer o Allowing the defendant to retain the benefits without paying the plaintiff would result in the unjust enrichment of the defendant at the plaintiff’s expense

Fried, Contract as Promise  

Courts will fill in gaps in a way that a reasonable person (with the intent formed in the contract) would Philosophy of autonomy in contract law o Our freedom to bind ourselves in a way that’s credible o “I am free to bind myself” – support by enforcing commitments

Bolin Farms v. American Cotton Shippers Association       

Plaintiffs agreed to sell cotton to Defendants at a price agreed upon regardless of what the price was at harvest time FORWARD SALES CONTRACT o Agreed to buy and sell at a certain date as a certain price Plaintiffs wanted to back out of the contract to get a better price, but it was upheld Both parties were experienced and knew what they were signing up for The price they agreed was a fair market value at the time the contract was made The contract was entered into by a WILLING buyer and a WILLING seller on an open and competitive market When we make bargains that turn out to be good for us we keep them, and when we make bargains that turn out bad for us, we still keep them

Ora Lee Williams v. Walker-Thomas Furniture Company   

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Plaintiff bought furniture from the Defendant Pro-rata terms saying that if there was any debt owed, the defendant could repossess all items purchased Unconscionable – included an absence of meaningful choice on the part of one of the parties together with the contract terms which unreasonably favor the other party o Whether a meaningful choice is present depends on the circumstances of the transaction o Meaningfulness can be negated by gross inequality of bargaining power o Reasonableness or Fairness – concern with the terms of the contract considered in light of the circumstances existing when the contract was made  Not a simple or mechanical test  Whether the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place Did each party have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? o Unlikely that one parties consent was given to all the terms if they did not understand all the terms

Sullivan v. O’Connor  

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Defendant promises Plaintiff to perform plastic surgery on her nose to enhance her beauty and improve her appearance  her appearance was worsened after surgery Remedies available for the breach o Pain, suffering, and mental distresses are compensable damages for breach of contract under either expectance or reliance damages Clear proof of promise between doctor and patient required

Different Types of Remedies 

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Expectation – non-breaching party in the position they would’ve been had the contract been performed. Usual remedy in contract law o Formula for Calculating  [1] the amount by which the value of the defendant’s actual performance was less than the value of the promises performance [minus]  [2] whatever benefits, if any, the plaintiff received from not having to complete his own performance Reliance – non-breaching party in the position they were in prior to contract (had there been no contract) (used when expectation measures are difficult to compute and when P recovers on promissory estoppel) Restitution – compensate the non-breaching party by for the benefit conferred of the breaching counter party. Amount by which the breaching party would be unjustly enriched. o Used when:  [1] a non-breaching plaintiff has partly performed, and the restitution measure is greater than the contract price  [2] a breaching plaintiff has not substantially performed, but is allowed to recover the benefit of what he has conferred on the defendant

Jurisprudence  

Positive Jurisprudence – knowing what the law is (what the law IS) Normative Jurisprudence – not only knowing what the law is, but why it is that way, and if there are problems, how can it be made better (what the law OUGHT to be)

Why Does the Law Enforce Agreement Between Private Parties 

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Private Autonomy – the law views private individuals as possessing a power to effect, within certain limits, changed in their legal relations o By enforcing a promise, the court is merely arming with legal sanction a rule previously established by the party himself Reliance – a breach of contract may work an injury to one who has changed his position in reliance on the expectation that the promise would be fulfilled o Measuring the cost:  Directly – by looking to see what the promisee actually expended in reliance on the promise  Contractually – by looking to the value of the promised performance out of which the promisee presumably expected to recoup his losses through reliance Unjust Enrichment – presents a more urgent case for judicial intervention because not only have you lost something, but the other person unfairly gained something o Again, can be measured either directly or contractually Utilitarian Theory – foster exchanges because they make people better

Different Perspectives on Contract Law  

“Langdellian” Formalism – the rules of any given area of law, such as the law of contract, can be deduced from a small number of basic principles “Legal Realism” – the life of the law has not been logic, it has been experience

Three Contemporary Approaches to the Normative Jurisprudence of Contract 1. Law and Economics – focuses on the incentives legal rules create and their likely effects on human behavior. Assumes that parties are rational, self-interested utility maximizers. Predictive Approach. 2. Relational Contract Theory – too much law can get in the way of successful transactions 3. Critical Approaches – take a skeptical attitude towards the law

Consideration      

“A right, interest, profit, or benefit accruing to one party OR a forbearance, detriment, loss, or responsibility given, suffered, or undertaken by another Creates an enforceable contract, otherwise it is just a promise Establishes a bargained-for exchange. Novelty of an idea is not required for the idea to serve as consideration. The lack of novelty does not equate to a lack of value Nominal consideration counts sometimes Modifications to contracts need fresh consideration, there are exceptions under 89(d)

Consideration as either a benefit to the promisor or a detriment to the promisee supplanted by the “bargain” conception of consideration Bargain Conception – found in §71 of the Second Restatement of Contracts (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise (3) The performance may consist of: (a) an act other than a promise, (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person Isaac Kirksey v. Angelico Kirksey 

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Defendant wrote to the Plaintiff after the death of his brother (her husband) and said “If you come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend” Plaintiff moved in and was required to move after two years The court ruled it was a gratuitous gift

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o If the case was argued today, it would have been forbearance  She could have stayed where she was; she gave up where she lived Detriment did not count as consideration yet

Louisa Hamer v. Franklin Sidway 

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Uncle promised his nephew if he would refrain from drinking, swearing, using tobacco, and gambling until he turned 21, he would pay him $5,000 o Nephew fulfilled his end of the bargain, but his uncle died without having paid the money o Defendant argued it was a gratuitous promise by the uncle o Plaintiff argued that giving up the things he did was a detriment which should count as consideration The contract was enforceable because the plaintiff refrained from something that he is entitled to do, which is a sufficient detriment to create an enforceable contract Detrimental reliance upon the promisee (giving up a right) counts as consideration to hold a promise legally binding

William F. Langer v. Superior Steel Corp 

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Plaintiff was about to retire and his employer (defendant) gave him a pension of $100 per month for as long as he remained loyal to the company and refrained from employment as a competitor  stopped payments after four years Plaintiff had forbearance (the other side got something valuable – Plaintiff didn’t go work for a competitor” which is a significant consideration to support a contract Also enforceable under promissory estoppel – a promise to do something in the future o Induced by the promises made to refrain from seeking employment Section 90 of the Restatement o A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise”

Pennsy Supply Inc. v. American Ash Recycling Corporation   

Plaintiff was a paving subcontractor required to use a certain material at no cost, but which cost a lot to dispose of and repair when that material cracked There was consideration because the benefit was Plaintiff taking the hazardous waste off of the defendant’s hands meaning they would not have to pay for its disposal Promise to supply AggRite free of charge induced plaintiff to assume the detriment of collecting and taking title to the material, and it was this inducement that made the defendant make the offer to provide AggRite for free

Intent to Contract

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there is a difference between a party’s intent to agree to a transaction and the same party’s intent to be legally bound to that commitment, that is, his or her “intent to contract” Consideration functions to separate out for enforcement those agreements in which the parties intend not only to commit themselves, but to be legally bound to that commitment

In re. Edwin Farnham Greene  

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A man goes bankrupt and the mistress files suit to get his stuff and the trustees say the claim isn’t allowable Plaintiff’s arguments for why it should be an enforceable contract: o $1 consideration recited in the paper is nominal  Cannot be urged that $1 will support an executory promise to pay hundreds of thousands of dollars (not shown to have been paid, also) o “Other goods and valuable considerations”  Facts show nothing good or valuable was actually given o Release of claims  Release from imaginary claims is not valuable consideration for a promise o Intended to make a valid agreement  Promising to make a gift to another will not be enforced unless consideration is actually present (barring exception cases – charity) Past cohabitation and “intercourse” is not consideration Seal – In New York, a seal is now only presumptive of evidence of consideration on an executory instrument and in this case there was no consideration Considered in this case was the rights of third parties (the other creditors), which is why nominal consideration may not have been enough

Seal 

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§95(1) of the Restatement o In the absence of a statute a promise is binding without consideration if:  (a) it is in writing and sealed; and  (b) the document containing the promise is delivered; and  (c) the promisor and promisee are named in the document or so described as to be capable of identification when it is delivered Many U.S. states passed statutes radically reducing the legal effect of a sealed writing o Some abolished the seal entirely o UCC §2-203 – “every effect of the seal which related to ‘sealed instrument’ as such is wiped insofar as contracts for sale are concerned” Some states retained the seal, but provided that lack of consideration should remain a defense to sealed instruments

Dan Cohen v. Cowles Media Co.

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An anonymous source shared information on an opposing political candidate and the reporters promised anonymity  breach that promise There is no contract claim because exchanging information for a news source is not fit for a legally binding contract

§21 Restatement Second on Contracts 

Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract o A orally promises to sell B a book in return for B’s promise to pay $5. A and B both think such promises are not binding unless in writing. Nevertheless, there is a contract, unless one of them intends not to be legally bound and the other knows or has reason to know of that intention. Mixed Motives and Adequacy of Consideration

Samuel Thomas v. Eleanor Thomas  

Before a man died, he left his wife a house in his row of houses should the wife pay the executors a sum of 1lb yearly towards rent and to keeping the house in good shape Basic Rule – almost anything of value counts as consideration, regardless of whether it was of equal value – regardless of the motivation behind the contract

Robert C. Browning v. O. Arthur Johnson 

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Two osteopaths entered into a contract where Browning agreed to sell his practice and equipment to Johnson, but before the execution, Browning offered to pay $40,000 if he would give up the contract of sale  Johnson agreed Sufficient consideration to support a promise exists when, at the request of the promisor, the promisee incurs a detriment or he promisor receives a benefit o If consideration is sufficient to support a promise, the adequacy of that consideration does not matter so long as it isn’t fraudulent

Robert C. Apfel v. Prudential-Bache Securities, Inc   

Something does not need to be novel for it to be valuable Sale of an electronic book entry system that defendant wants to stop making payments on because the ideas were in the public domain at the time of sale and therefore not novel Defendant received something of value and novelty of the idea was not required for the idea to serve as consideration Preexisting Duty Rule

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Performance or the promise to perform a preexisting legal duty does not constitute consideration First applied to cases involving the discharge of obligations, then also applied to onesided modifications of existing contracts in which one party undertook to do something additional and the other side’s obligations or performance remained the same

William Levine v. Anne Blumenthal 

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Parties make a modification to their lease agreement o Defendant had a hard time paying rent so they agreed to keep the payments at the same price instead of raising it like the original contract stipulated Modification was not supported by consideration because no fresh consideration was offered – defendant already had a duty to pay that money anyway (can’t use as consideration the promise to pay rent, because she was already obligated to do that)

Alaska Packers’ Association v. Domenico 

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Men working on a vessel entered into a contract to be paid $50-60 for the season, but they stopped working during the terms of their contract and demanded an additional wage o Perform the same services they were already under contract to do No consideration because there was no fresh consideration. The plaintiffs’ relied on their services they were already under contract to do as consideration, but this wasn’t fresh so the agreement to pay them more was unenforceable Duress was also an issue motivating the judge because the defendant on board knew he would not be able to get a new crew

Alfred L. Angel v. John E. Murray   

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Garbage man seeking additional money on account there being unexpected dwelling units and the city agrees to pay – a taxpayer files suit to force the city not to pay Pre-existing duty rule is not applicable here Restatement 89(D) “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 the circumstances not anticipated by the parties when the contract was made 89(D)(a) does not compel a modification of an unprofitable or unfair contract, it only enforces a modification if the parties voluntarily agree and if: o (1) the promise modifying the original contract was made before the contract was fully performed on either side, o (2) the underlying circumstances which prompted the modification were unanticipated by the parties, and o (3) the modification is fair and equitable Illusory Promises

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When there is no mutuality of agreement, there is no consideration Eisenberg, The Principles of Consideration (law firm hypothetical o Enforce contracts that have value sort of replaced the seal

Rehm-Zeiher Co. v. F.G. Walker Co.

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Whiskey purchase agreement buyer can withdraw for any unforeseen reason which is a broad reason for withdrawal The seller ends up not delivering because the price of whiskey went up Because the buyer had a right to withdraw without penalty, the court says it was an illusory promise Lack of mutuality – one side didn’t have to hold up their end of the bargain, so the other party’s promise to them was not enforceable (if you’re n...