Contracts Outline PDF

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2012 outline of contracts class...

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Contracts Outline What is a Contract? Restatement (Second) of Contracts § 1: Contract: A contract is 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 EX: If you pay me 100 now, I promise to deliver this book to you in a week A: This is a classic bargain case (you do something for me, I do something for you). This is a legally binding promise EX: I promise to give you 50 in one year. A: This is not a legally binding promise. There is no bargain here. This is considered a gift. What is a Promise? R 2nd of C § 2 Promise: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. A makes a promise to B: A is the promisor and B is the promisee. Where a promise will benefit a person other than the promisee, that person is a beneficiary. “Manifestation of intention”: adopts an external or objective standard for interpreting conduct rather than an undisclosed intention (see lucy v zehmer). A promisor manifests an intention if he believes or has reason to believe that the promisee will infer that intention from his words or conduct. (private knowledge is taken into account) A promise needs to be distinguished from a statement of opinion or a prediction of future events. Problem arises if a seller of goods says words that amounts to warranty. A statement from seller does not create warranty unless the buyer’s reliance on the seller’s skill and judgement may create an implied warranty. Where an expert opinion is paid for, there is likely to be an implied promise. EX: A, on seeing a house of thoroughly fireproof construction, says to B, the owner, “This house will never burn down.” This is not a promise but merely an opinion or prediction. If A had been paid for his opinion as an expert, there might be an implied promise that he would employ reasonable care and skill in forming and giving his opinion. EX: I just shoveled the snow in front of your house and saved you 50. Pay me. A: This is not a legally binding promise. Even if the landlord saw the person shovel the snow, it is not a binding promise. This I still a gift. Usually, the law does not consider silence as implied promise. If there is a chance of making a contract, courts are more suspicious of unjust enrichment claims. Public policy to let people enter contracts voluntarily. EX: I promise to pay whoever finds my dog 100 A: This is a legally binding promise. An example of a unilateral contract. Once the dog is found, the deal is concluded. EX: As soon as you paint my house to my satisfaction, I will pay you 500 A: Hard to verify this condition “to satisfaction”, might make it unenforceable. When one party has a lot of power in a contract, ask if the party actually promises anything, called illusory promise (look like promise but doesn’t actually promise anything)

EX: If you vote, I will eat anything commercial: A: not a legally binding promise: a reasonable person would know that it was a joke and not serious. EX: I promise to be your husband till death do us part A: Modern law, it is not a legally binding promise, although marriage is a special contract. EX: I promise to pay you 300 for the night (prostitute) A: The law is clear: this is not a legally binding promise because his is illegal. Courts will not enforce because they say they don’t want to deal with such criminal contracts, wants to discourage such contracts. Policy questions tho, leaving weak party helpless. What is a breach? When a party breaches a contract, the other party receives remedies. EX: landlord says, if within the next month you don’t like the place, ill let you out of the lease. Is landlord bound? A: Depends… in the matter of law, generally what the landlord says will not be part of the contract. At the end of the day, the written document is a good anchor as to what is in the contract. (parol evidence rule)… What is a remedy? The breached against party needs to indifferent between performance and breach. If there needs to be decided between money or object, the court would prefer money. Politican/ book publisher case? Politican was harm but he picked up another deal and mitigated his damages so case against original publisher is weaker. If didn’t mitigate O publisher would argue he should have mitigated. Contract to sell Mona Lisa? Court must order performance of contract, the Mona Lisa is a unique good Remedy for fixing hand but turned into hairy hand? Lucy v. Zehmer: RULE: the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. (Objective test; what a reasonable person would find) Why objective test? There are two parties so which parties’ subjective intent should we follow? Without objective test, no one would know if they are entered in a contract. Arguments for Zehmer: intoxication was involved, considering the big transaction. Difficult argument but maybe fraud(Lucy brought in the alcohol to get Zehmer drunk)? EX: Pepsi commercial Harrier Jet: Would a reasonable person know that buying a jet off of pepsi was a joke? THE OBJECTIVE THEORY: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts Generally an objective test But private knowledge is taken into account HYPO 1: Z says “I have a funny joke”. Lucy does not understand the joke and says “I Accept“.

A: Z would win because a reasonable person would know that Z was joking. HYPO 2: Z has been going around town making an offer with a straight face immediately saying it was a joke right after. L knew about Z’s weird sense of humor and says “I accept”. A: No contract, Z would win. A reasonable person with Lucy’s knowledge would not think it is serious. Exercise #2 Notes: Car AD: arguments for car dealership: fine print gave list of models, “trade worth $3,000”, Court held for consumer… Court says reasonable person when seeing the ad that the dealership would give 3000, they think a reasonable person would not notice the fine print. Court also thinks this is a bait and switch Controversial opinion. Aaron Rodgers wearing jersey bet: question was basically, was it a joke? They were at a party, good friends, part of the contract was real, they were smiling and said “sure thing”… can be argued in both sides. One friend said he knew it was a joke.

PROMISE CONSIDERATION RSC § 17: Requirement of a Bargain 1) the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration NOTES: the typical contract is a bargain and is binding without regard to form Element of agreement is sometimes referred to as a “meeting of the minds”. The parties to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a party does not impair the obligation he purports to undertake. Therefore, there simply must be “manifestation of mutual assent” RSC § 71 Exchange 1) to constitute consideration, a performance or a return promise must be bargained for 2) a performance or return promise is bargained for if it is sought by the promisor in exchange 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 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 NOTES: consideration and the promise bear a reciprocal relation of motive or inducement, there is a matter of mutual assent, the law is concerned with the external manifestation rather than the undisclosed mental state Courts do not inquire into the adequacy of consideration. Even when both parties know that a transaction is in part a bargain and in part a gift. QUESTION: Difference between illustration 5 and illustration 6?

RSC § 79 Adequacy of consideration If the requirement of consideration is met, there is no additional requirement of 1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee or 2) equivalence in the values exchanged; or 3) “mutuality of obligation” NOTES: disparity in value, with or without other circumstances, sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense and does not satisfy RSC § 71. EX: In consideration of one cent received, A promises to pay $600 in three yearly installments of $200 each. The one cent is merely nominal and is not consideration for A's promise. HYPO 1: A grandmother tells her she promises to give her 5000 in 5 years. 5 years later, G is broke, can A sue? A: no, A cannot sue. This is a gift, there is not sufficient consideration for this to be a contract. HYPO 2: Like above, but G dies just before 5 years. Can A sue estate manager? A: no, cannot. Just like above. In fact, Estate manager needs to follow a certain distribution of G’s stuff. HYPO 3: like above, but 4.5 years later, she gives A 5000. Can estate manager sue A? A: no, G gave A a gift. HYPO 4: G tells C that if he refrains from drinking, smoking, swearing, and playing cards, in the next 5 years, she promises to give him 5000. Can C sue? A: Yes, C gave up legal rights which is enough for consideration. Hamer v. Sidway: similar to HYPO 5 Does not matter that uncle did not “benefit” from the contract. It only matters that the nephew gave up his legal rights. HYPO: G says, if you love me I will pay you 5000 in 2 years A: This promise lacks consideration. Why not? There is no way to verify if the promise was met. This is something the law cannot deal with. HYPO: G says to Dan that if D helps with chores, then G will give 5000. G dies at end of year. Can D sue for money? A: Yes, the act here is easy to verify and is classic consideration. HYPO: G says if C refrains from smoking and drinking, then G will pay C 5000. However, smoking and drinking is illegal. Is the promise enforceable? A: there are arguments on both sides. C did not give up any legal rights. However, not everyone follows the law so there is some value in G’s promise to not want C to break the law. Consideration takeaways: A promise is enforceable in contract law if it is part of a bargain. The promisee has to hive the promisor consideration: something of certain value that the law considers sufficient that the promisor has bargained for. Consideration and conditional Gifts

Question to be asked to see if there is consideration or conditional gift: if there pretense? Context would make answering this question easier. EX: A: B, if you come to the bank with me, I will give you 5000 B goes but A does not pay Analysis: if seems like a conditional gift. The promise is not bargained for and therefore not enforceable. However, if context suggests reasons for A wanting B at the bank, then it is a contract. Must be judged from the promisor’s objective perspective Kirksey v. Kirksey If you move to my place, I’ll give you a place to stay… Holding: the promise on the part of the defendant was a mere gratuity, and that an action will not lie for its breach. There was no benefit derived to the promisor. Promisee had to travel in order to get the gift. Langer v. Superior Steel Corp You will receive 100 a month as long as you live and not be employed in any competitive occupation Holding: enforceable. Promisee was getting 100 a month which was good consideration. HYPO: if you(A) come to my (B)house, you can play with my puppy. If A shows up, does B have to allow A to play with puppy. A: No, there is no consideration for B. HYPO 2: Like above, but B loves A. A: Yes, B wants time with A which is his consideration. Conditional gift and bargained for exchange takeaways -consideration must be ‘bargained for’ -> this means that it must be something that at least partly induced the promisor to make the promise (must be reason for promisor to make the promise) RSC § 73 Performance of legal duty Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. Lakeland Employer v. Columber Employment at-will, non-compete signed, then end of employment relationship. Was the non-compete supported by consideration?

HYPO: A signs a contract for 2 years employment with B. It describes salary, responsibilities, dress code, vacation days… it this binding? A: yes, this is binding. HYPO: same as above, but the contract also has a one year non-compete agreement after the end of the contract… binding? A: yes, the non-compete is supported by consideration. The consideration here is A’s work.

HYPO: A is employed under a 2 year contract by B. After a year, at B’s request, she signs a non-compete. Is it supported by consideration? A: no, because the non-compete is not supported by consideration. HYPO: same as above, but A received a salary increase in connection to signing the non-compete. A: the non-compete is supported by consideration. (same if it was a one-time bonus) HYPO: A is an at-will employee and signs a non-compete during employment, no bonuses, binding? A: Majority argument: at will employee knows what they are getting into, continued employment is the consideration for signing the non-compete. Dissent: the majority argument is fiction, there is no substance… no right or wrong answer. Modification RSC § 89 Modification of Executory contract 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 justice requires enforcement in view of material change of position in reliance on the promise UCC SEC 2-209 modification, recession, and waiver 1) an agreement modifying a contract within needs no consideration to be binding 2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. When a party merely does what he has already obligated himself to do, he cannot demand an additionally compensation afterwards. A pre-existing duty cannot serve as consideration. Modern trend is that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise. Even with no additional consideration, if both parties agree voluntarily, then valid Alaska Packers v. Domenico AP contracted a group of sailors to fish, once out, the sailors demanded more money or the wouldn’t work. AP was forced to pay otherwise the season would be ruined. AP agreed but did not pay after the fishing season was over Holding: Pre-existing duty rule: the second promise is not supported by consideration. Sailors already had sufficient consideration. Angel v. Murray Additional money for taking out trash of a city that is rapidly growing Criteria for modification: parties must voluntarily agree (RSC sec 89) 1) the promise modifying the original contract was made before the original was fully performed on each side. 2) the underlying circumstances which prompted the modification were unanticipated by the parties

3) the modification is fair and equitable Applied to the case: 1) modification was made before the five year contract ended and had not been fully performed by either party 2) the sudden increase of housing was unanticipated 3) cannot say that the increase in pay was not fair and inequitable Preexisting rule protects against duress and abuse (fisherman case) Restatement 89 requires that the modification will be “fair and equitable”. Comments in 89 makes clear that the modification must be done in good faith (angela v. murray) May have hard time to identify if a change is fair or prove that it is good faith. Modification takeaways: Under the common law’s pre-existing duty rule, any modification must be supported by a separate consideration. Modern approach is partly different: in a contract for the sale of goods, modification does not require consideration, although it cannot be done in bad faith. If not sale of goods, modification generally requires separate consideration (73) but typically subject to the exceptions set forth in 89

Illusory Promises RSC § 76 conditional promise A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur. RSC § 77 illusory and alternative promises A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless a) each of the alternative performances would have been consideration if it alone had been bargained for; or b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercise his choice events may eliminate the alternatives which would not have been consideration

HYPO: Anne: if you promise to deliver me the book in a week, I will pay you 100 Ben: I accept, I promise Can anne or ben walk away? No, they are both bound. Anne must pay and Ben must deliver the book. HYPO: like above, but anne adds “if I’m in the mood to accept it, I will pay you 100…” Can either walk away? Anne has made an illusory promise. Because anne has the freedom to not pay Ben. Ben is also given that freedom. Therefore, both can walk away.

HYPO: like the first but anne adds “ and if a new version of the book is not published by Sunday” Can either walk away? Does anne limit herself? Yes, ben can sue if new version is not published and ben delivers. Both are bound. HYPO: like first, Anne adds “and if I am still signed up for the course by then” Can either walk away? No, both are bound. Like the previous hypo. HYPO: Alex: my company will clean your apartments for 100 per. You can choose how many we clean Bonnie: I accept A week later, bonnie: clean 5 here is 500 Alex: the price is 120 now Who wins? Question here is whether this is a real contract? Bonnie has all the power, she doesn’t limit herself in any way. She has the option for no performance at all which points to illusory promise. Therefore, this is an illusory promise so Alex would win here because there was no contract to begin with. Restatement test: take all the routes to choose performance, if any of there routes have no consideration, then all routes are meaningless. Output contracts: HYPO: C: I will buy every books you print, if you sell them to me at 10 percent discount D: OK D gives C only 5 percent. Breach? A: yes, was the breached promise supported by consideration? yes What if D outputs 10 times the amount? Does C still have to buy all A: actually no, UCC 2306, assumption that there is agreement to fluctuation within reason, no quantity unreasonably disproportionate to any stated estimate… may be tendered or demanded

Petroleum Refracting v. Kendrick Oil Delivery in 4 installments Seller may cancel any unshipped portion on five days notice I should discontinue making this grade oil Buyer refused acceptance seller sold at a loss Buyer’s argument: seller has an out so buyer should also have an out… not a binding contract. Because the seller’s promise is illusory, the buyer’s promise is not supported by consideration Seller’s argument: they have a detriment, that they either sell to buyers or not sell to anyone. Basically, seller does not have other “real” alternatives… like the book class hypo HYPO: I promise to rent you this apartment for the next year but u can cancel on 45 day notice? A: the landlord here has given himself a limitation. If 5 minutes notice then, illusory promise, but 45 days may be ok. HYPO: C: I will buy all my books for law school just from you if you promise to give me 10 percent discount

D: Agree D gives C 5 percent instead, breach? The que...