Contracts Outline

1.  Promises

  1. Restatement §2: Promise is a manifestation of intention to act or refrain from acting…so as justifies promisee into understanding that a commitment has been made.
  1. Hawkins v. McGee (“Hairy Hand” case)
  2. Doctor promised patient a “perfect hand.”
  3. Patient agreed, based on Dr’s guarantee.
  4. Patient entitled to expectation damages (worth of a “perfect hand” as promised)

2.  Promissory Agreements

How and when is an agreement made?

a.  Intention of the parties

  1. Restatement §201: When 2 parties attach different meanings to a promise, the meaning attached by party A prevails if:
  2. party A didn’t know of different meaning by party B
  3. party B knew the meaning attached by party A
  1. Lucy v. Zehmer (drunken promise case)
  2. Drunk man agrees to sell his farm; drafts “contract” on napkin, claims too late that it’s a joke
  3. No objective indications that seller was joking
  4. Intention of buyer prevails
  1. Oswald v. Allen (Swiss coins case)
  2. Two collections of “Swiss Coins” and “Rare Coins” – neither party understood meaning of the other when buyer said he would buy “all Swiss coins.”
  3. Language ambiguous; no meeting of the minds
  4. No reason to believe either knew of other’s intent; no contract.

b.  Offers

  1. Promissory agreements can be made when one party “offers” and the other “accepts.”
  1. An offer creates a “power of acceptance” in offeree.
  1. Restatement §24: Offer is manifested willingness to enter bargain, such that offeree understands his acceptance is invited and would conclude bargain.
  1. Mesaros v. U.S. (buying coins from ad)
  2. Ad to order rare coins from U.S. Mint not an offer, but an offer for the buyer to make an offer.
  3. Therefore, buyer does not conclude bargain by filling in order form.
  1. Note: most ads are not legal offers. Unless…
  1. Lefkowitz v Store: (mink coat case)
  2. Ad: “First come, first served”: specific coat at $1.
  3. Offer is clear, explicit and leaves nothing open for negotiation.
  4. Acceptance of such offer will complete contract.

c.  Powers of Acceptance

  1. Restatement §36: An offeree’s power of acceptance terminated by:
  2. rejection or counter-offer by offeree;
  3. lapse of time;
  4. revocation by offeror; or
  5. death or incapacity of either party
  1. Akers v. Sedberry (acceptance of resignation?)
  2. Offer was understood to last only during the conversation.
  3. She could not accept offer after the conversation finished.
  4. Had she asked for “time to consider” that would’ve been a counter-offer, not an acceptance.
  1. An acceptance with conditions is considered a rejection or counter-offer, not a legal acceptance.
  1. If offer is revoked, it must be effectively communicated to offeree before offeree accepts. (If revocation is mailed, the letter must reach offeree).
  1. Agreeing to accept does not hold that the offer will be held open, even if a date is given. Consider:
  1. Petterson v. Pattberg (acceptance rejected)
  2. Offer to give a discount if mortgage paid off by certain date.
  3. Offeree comes on date specified, cash in hand.
  4. Offeror effectively revoked by telling offeree that the land was sold.
  5. Offeror never said the offer wouldn’t be revoked before specified date.

Note: This is a unilateral contract. Offer cannot be accepted by a promise to perform, but actual performance only.

Hypo: A offers to pay $100 if B crosses the Brooklyn Bridge. Can A revoke after B is 10 ft from the end? NO: this is unfair. If A can revoke even when B has partially performed, B will be less willing to enter into the deal.

d.  Acceptance

  1. Offeror is “master” of the offer. He can specify methods by which offeree can accept, whether it’s performance, or promise to perform.
  1. Davis v. Jacoby (perform or promise?)
  2. Offer: come help me, and I’ll leave you my estate.
  3. Offer not revoked by death of offeror, because offeror received valid acceptance before death.
  4. Acceptance was a letter: “We’re coming.” This is enough, b/c offeror said “let me know.”

Note: Preparation (not performance) is not enough to make an offer for a unilateral contract irrevocable. E.g., in Davis, preparing their house to leave is not enough. Davis must arrive and do the performance asked for to qualify for part performance.

  1. Purchase of a guaranteed product is not acceptance. You must notify manufacturer of your acceptance.
  1. Restatement §6: You can’t make people accept by silence unless…
  2. Offeree takes benefit, w/ reasonable opportunity to reject them, and reason to know compensation was expected;
  3. Offeror stated that acceptance may be manifested by silence, and offeree remains silent w/ intent to accept; or
  4. Because of previous dealings, silence is understood to be acceptance.
  1. Cole v. Holloway (acceptance delayed)
  2. Buyer put in order to a salesman.
  3. Salesman’s company rejected offer after long delay, when price for goods had gone up.
  4. Delay in communicating decision will be construed as acceptance. Not fair to delay acceptance while waiting for market to change in your favor.
  1. UCC on acceptance
  2. Article 2 covers sale of goods.
  1. Can an offer be accepted, if the terms of agreement are inside box? Consider:
  1. ProCD v. Zeidenberg (terms inside)
  2. A buyer may accept by performing acts that vendor proposes to treat as acceptance.
  3. Buyer has accepted terms b/c he couldn’t use product w/o accepting terms that flashes up with the program.

Note: Though the terms were inside the box in ProCD the terms themselves (not to use product for commercial gain) are not unreasonable. However, if terms are outrageous, buyer should not be bound.

e.  Incomplete Agreements

  1. Certainty: If terms of a contract aren’t fixed, there could still be a deal, if the court can “fill in” the terms w/o violating the parties’ autonomy. Consider:
  1. Sun Printing v. Remington Paper (uncertain time period for contract)
  2. Agreement to sell paper over a period of time, max price fixed.
  3. Terms missing: no time frame set for when prices would be effective.
  4. They only “agreed to agree” – not enforceable. However…

Note: Under UCC §2-204, parties can agree to agree. Parties can therefore be bound to negotiate in good faith.

Negotiating in good faith: (no requirement to good faith, unless initial agreement says they must do so.)

  1. Apothekernes v. IMC Chemical
  2. Parties had an initial agreement, subject to approval by one party’s board of directors.
  3. Just because agent of company didn’t advocate the deal to his board of dir, doesn’t make it bad faith!
  4. Itek v. CAI
  5. Parties agreed to make “every reasonable effort” to reach final agreement. This bound them to good faith.
  6. Making a deal with a third party behind the other party’s back is bad faith.
  1. Requirement for writing
  2. Statutes of frauds differ greatly from state-to-state.
  3. Not included in statute of frauds: employment K, construction K, etc.

3.  The Justification Principle

What makes a promise enforceable in court?

a.  The Bargained-for Exchange

  1. Promises are enforceable when supported by consideration. Consideration consists of a performance or a return promise that is bargained for, in exchange for the promise sought to be enforced.

NOTE: Not all contracts need consideration to be valid!! E.g., if someone puts a gun to your head and says “Your car or your life,” that may be consideration, but it’s certainly not enforceable. In other cases, there may be no consideration at all, but it will be worthy of enforcement (see reliance, e.g.)

Gifts

  1. Congregation v. DeLeo (gift enforceable?)
  2. Verbal promise for a gift not enforceable.
  3. Promisor didn’t make gift because of promise to name library after him – no consideration.
  4. A hope or expectation for a gift, even a well-founded one, is not reliance.
  5. No legal benefit to promisor, no detriment to the promisee (in reliance), so no consideration.
  1. Schnell v. Nell (gift to wife’s friends)
  2. K: Give money to wife’s friends in “consideration” for 1 cent and wife’s love and services to husband. Not enforceable.
  3. 1 cent is nominal, not intended to be real consideration.
  4. Wife’s services not induced by wish to give friends money.
  5. It was a promise to give a gift, not a contract with valid consideration.

Promises to forbear from acting as consideration

  1. Hamer v. Sidway (forbearance from drinking..)
  2. Uncle’s promise to pay $5,000 to nephew for his forbearance in drinking, smoking, etc. is enforceable.
  3. Nephew refrained from acting when he otherwise had a legal right to do so. This performance is valid consideration.

Adequacy of consideration

  1. Batsakis v. Demotsis ($25 worth of Greek money for $2,000)
  2. Inadequacy of consideration will not void contract.
  3. To buyer, the Greek money was worth $2,000 US at that time. She was willing to pay that much b/c that’s how much she valued them.
  1. Dyer v. National.. (forbearance from suing)
  2. Good faith forbearance to litigate a claim (even if claim is invalid) is sufficient consideration. (good faith means, party thought the claim to litigate was valid).

Note: This is to encourage people to enter agreements that they think are worthwhile. Can’t have courts determining what’s adequate and what’s not for the parties. Goods should reach their highest value.

Lack of Mutuality

  1. Wickham v. Farmers
  2. Buyer agreed to buy “all the coal I want” from seller, at a fixed price.
  3. Buyer had no obligation to buy. Therefore, seller got no consideration.
  4. Nothing was given by buyer in exchange for seller’s promise to hold price open.

In contrast…

  1. Wood v. Lady Duff Gordon
  2. Having exclusive rights to place lady’s name obligated Wood to perform using reasonable effort. (implied obligation)
  3. Wood’s obligation to perform is valid consideration. Contract valid.

Note: The UCC §2-306 says in the sale of goods: exclusivity imposes obligation to use reasonable efforts.

b.  Mid-Term Modifications

Need for consideration – common law

  1. Restatement §73: Performing something that is already owed is not consideration
  1. Levine v. Blumenthal (legal duty-not consideration)
  2. Landlord agreed to accept less per month from tenants for rental mid-way through contract.

2.  A promise to do what promisor is already legally bound to do is not sufficient consideration for the modification to be valid.

Unless! Unforeseen circumstances

  1. Restatement §89: Modification can be made if fair and equitable to do so, AND if contract has not been fully performed on either side.
  1. Angel v. Murray (trash collector case)
  2. Through no fault of either party, burden on trash collector far exceeded what was agreed to. Can he ask for more $$ under contract (modify it)?
  3. Yes. Modification is fair and equitable, and circumstances were unforeseeable.

No need for consideration – UCC

  1. Gross v. Clarke
  2. Printer raised magazine price mid-way; publisher didn’t object then. Publisher is bound by modification.
  3. If contract is no longer fair, there’s nothing wrong in asking for more $.
  4. No consideration is necessary to make a modification, under UCC §2-209. But has to be in good faith (“hold up game,” e.g., no ok)

c.  Reliance on a Promise (promissory estoppel)

  1. Restatement §90: If A promises something to B, with reasonable expectation that it would induce B to act or refrain from acting (and B does in fact, act/refrain) then promise is enforceable if justice requires.
  1. Devecmon v. Shaw (promise to pay for Europe trip)
  2. Nephew incurred expense at the instance and request of uncle that he would be reimbursed. Nephew reasonably relied on promise.
  3. Uncle’s estate is bound to fulfill uncle’s promise to pay.

Note: You must be worse off as a result of your reliance.

Reliance in Employment

  1. Feinberg v. Pfeiffer (induced to retire)
  2. Promise to give a pension is enforceable b/c:
  3. Employee retired in reliance of that promise
  4. Employee could have stayed longer, but cut off her employment because of promise

Note: Inducing factor is important. (e.g., if employee in same situation as Feinberg was promised pension, then got cancer and quit work, inducement to rely may not be provable!

  1. Hayes v. Plantations (no reliance)
  2. Employee was going to retire anyways. No inducement to rely.
  3. No reliance, no contract.

Reliance in General/Sub contractors

  1. Drennan v. Star Paving
  2. General used sub’s estimate on his bid. General is now bound to complete work at bidding price.
  3. General relied on sub’s estimate. No formal acceptance (how can he accept, if he’s not sure he’s got the job yet?). But reliance, so there’s an enforceable contract.
  4. Acoustics v. CV Holder
  5. General did no accept sub’s offer by using sub’s estimate in his bid.
  6. Silent acceptance does not work b/c no previous relationship.
  7. Sub found out by mistake that his estimate was used in bid

Note: Contractors is the rare case where one can rely w/o accepting. It is a conditional acceptance, b/c Gen can’t accept if contract not awarded. On the other hand, Subs can revoke their bids before Gen submits his total bid, b/c there has not yet been any reliance.

Irrevocable offers

  1. UCC §2-205: Merchant can offer to hold open an offer to buy or sell goods if it’s in a signed writing.
  2. NOT enough to say “this offer will lapse in a week”
  3. Acceptable: “Offer held open for a week.”
  4. Restatement on Option contracts
  5. In exchange for consideration, party may agree to hold offer open.

d.  Unjust Enrichment & Restitution

Not concepts of contracts.

  1. Hypo: you get a fake $1,000 check…and the bank actually cashes it for you! You got a benefit, but have no legit claim to it (unjustly enriched). Bank can recover $1,000 from you in restitution.
  1. Gifts are not recoverable under restitution.

Implied promise

  1. Sparks v. Gustafson
  2. Services to friend continued even after friend’s death. Should friend’s son, who benefited, have to pay for benefits?
  3. Yes. Two factors to unjust enrichment:
  4. D received benefit from P
  5. It’s inequitable for D not to pay P for services rendered.
  6. There was expectation that P would be paid; services were not gratuitous.
  1. If you render a service you know other party doesn’t want, then you can’t collect in restitution. (officious intermeddler)
  1. You must have justified expectation for payment – if you were told expressly that you won’t be paid, you can’t collect.

Prior Legal obligation?

  1. If promise is given to fulfill a prior legal obligation (that has been discharged for some reason), then it’s enforceable under restitution. E.g. of such prior obligations:
  2. debts barred by bankruptcy
  3. debts barred by statute of limitations, etc.
  1. Mills v. Wyman
  2. Father promised to pay X after he heard that X helped sick adult son.
  3. X can’t collect in restitution, b/c:
  4. Service was rendered gratuitously at the time;
  5. Son was an adult: father owed no obligation on his behalf.

Promise given after service rendered