Contracts Outline

Definitions

Adhesion Contracts ( standard contracts) 2RSC §211 the courts require

  • The reasonable expectations of the adhering party
  • Whether the contract is unconscionable (consistent with reasonable expectations)

(a)Contracts of adhesion will not be enforced unless they are conscionable; and,

(b)Within reasonable expectations of the parties

(c)Chen: for fiduciary relationship (eg professional doctor/patient the party that has greater reason to know the terms of the adhesion contract should have taken greater steps in helping the other party in understanding the agreement (ref. Broeman v. Abortion Services)

(d)Procedural must have – look at the tactics (small print $5.00, and hurried signing of papers) and the parties involved (uneducated vs. big corporation or age differential)

(e)Substantive – unconsciousability, look to see the outcome of the contract if the party unfairly bares all of the risk, then it is bad almost illusory. ( the masses of preprinted forms are called Adhesion Contracts; a contract that puts the person in a take it or leave it position)

Contract

  • A promise or a set of promises which are made enforceable under law.
  • A promise or a set of promises for a breach of which the law gives a remedy, or the performance of which, the law in some way recognizes a duty
  • A contract is executory, meaning not fully completed, but not requiring the occurrence of some event or the performance of the same act in the future.

Promise

  • Manifestation of an intention to act or refrain from acting in a specified way, so made to justify a promisee in understanding that a commitment has been made.
  • An expression of intention that the promisor will conduct himself in a specified way in the future with an invitation to the promisee to rely thereon.
  • Declaration of one’s intention to do or refrain from something

Parole Evidence 2-202

  • Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a)by course of dealing or usage of trade, or by course of performance

(b)by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

(c)Chen: it must be one that parties would not ordinarily be expected to embody in writing. IE you cannot use parole evidence to include something that should have been included within the contract. Complete and integrated agreement.

Promisor

  • The person manifesting the intention to do or to refrain from doing something

Promisee

  • The person whom the manifestation of intention is addressed.

Beneficiary

  • Person who, other than the promisee, benefits from the performance

Consideration

  • The inducement to a contract. Something of value given in return for a performance or a promise of performance by another, for the purpose of forming a contract.
  • this is what makes an agreement to an offer enforceable

*** you must have consideration [or some substitution of like P/E]

*** and it must be BARGAINED FOR

Consideration is a legal detriment or benefit; and its value does not have to flow to Contracting parties, i.e. life insurance beneficiaries

-the legal right to forbear from something that one has a legal right to do can be consideration [see Hamer v. Sidway]

*** Cts will not inquire into the adequacy of consideration, see Batsakis; the warm and fuzzy feelings will suffice

*** BUT Nominal Consideration, a consideration done as a mere formality will not be good consideration -the 1$ in Rosie O’Donnell and see Fischer v. Union Trust; the 1$ paid by mental ill girl to father BUT Ct fails it saying that the 1$ was not bargained for

  • Cts “may” also fail consideration b/c of the unequal value in exchange

Therefore, GIFTS and MORAL CONSIDERATIONS are not consideration

* there is an exception with giving to charitable/non-profit institutions, Cts may enforce b/c charitable giving is the only way these institutions make their money, so Cts may enforce it under Promissory Estoppel if it is “relied” upon [and by relying incurs a detriment]

  • Mills v. Wyman; father of sailor said I’ll pay you for your gratuity BUT he decides not to pay -you are fucked b/c this consideration was not bargained for at time of contract formation
  • Webb v. McGowin-dude rides a falling radiator? down a building in order to deflect it from hitting McGowin. McG very thankful for Webb’s heroics promises to pay monthly. McG negs on the deal, but the Ct finds this enforceable with magic-they find that there was a “subsequent promise” and whereby the falling by Webb made it impossible to bargain for consideration, so they’ll construe the falling as consideration
  • Harrington v. Taylor-a volunteer doesn’t engage in bargaining therefore, it is not enforceable as a promise
  • Martin v. Little Brown-law student with too much time finds plagiarizing, and then sues for payment. The Ct did not imply a Contract in Fact b/c there was no indications of payment for the info; he acted as a volunteer

BUT when one party performs a service that is normally paid for and the receiving party, has knowledge, and offers no dissent the contract is implied in fact -this is ordering a drink at McGovern’s -the unconscious patient is also here [but Cts will enforce b/c of policy, you want people to save people, not wait around to get consent]

  • PROMISSORY ESTOPPEL

1) a Promise

2) Foreseeability that the promise would be relied upon

3) Promisee acted to incur detriment on definite and substantial reliance

4) it would be unjust not to enforce the promise

*** the Cts and Chen are not too high on P/E because any crafty lawyer can find a reliance with detriment; -P/E is fact specific so a judge/jury may see the facts differently and find there was no detriment SO P/E should not be the only weapon you go into Ct with

Liquidated Damages § 356

  1. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty
  2. A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence

Mental Illness

  1. A person incurs only voidable contractual duties by entering to a transaction if by reason of mental illness or effect

(a)he is unable to understand in a reasonable manner the nature of the consequences of the transaction

(b)he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition

  1. Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under sub section (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have changed that avoidance would be unjust. In such a case, a court may grant relief, as justice requires.

Misunderstanding

has to be an ambiguous term [a term that can be construed two ways]

each party had a different meaning attached to it neither party knows or has reason to know of the other’s misunderstanding but if one party knows OR has reason to know of the other’s mistake and sits on it, it will be enforced on the mistaken parties terms

-see Peerless

Bi-lateral mistake-a lot like, if not similar to misunderstanding

-if both parties make a mistake about the same Material Fact, then there is no K -the contract is void [it never existed b/c there was no meeting of the minds]

Sherwood v. Walker

-mistake about the Quality is always void

-mistake about the Value is OK within reason [remember unconscionability due to unequal exchange in values]

*** BUT remember who is in a better position to avoid the mistake, the better risk allocator AND the cost to finding the information or insurance

*** If one party had reason to know the other is screwing up, then the K may be enforced on the mistaken guys terms

Uni-lateral mistake

-if the buyer, as better risk allocator, makes a mistake to his detriment then he’s is up the creek if he makes a mistake to his benefit then, why argue

-if the seller makes a mistake to his detriment then he’s up the creek b/c he’s best risk avoider if he makes a mistake to his benefit then, why argue

Mutual Assent

  • Promisor and promisee agrees to the same bargain at the same time. A meeting of the minds.

Offer

  • Second Restatement §24 defines an offer to be ”the manifestation of willingness to enter into a bargain, so made to justify another person in understanding that his assent to that bargain is invited and will conclude that bargain.” That is, one party proposes a bargain (this proposal is the offer) and the other party agrees to this proposed bargain (this agreement is the acceptance).

A valid offer require three things

  1. The offer must be an expression of commitment which creates the power of acceptance;
  2. All material terms: definite and certain in its terms; and
  3. Communicated and known to the offeree.

Over Persuasion

  1. Did a special relationship exist
  2. Duress is the high pressure which works on the mental, moral or emotional weaknesses
  3. Cannot be an afterthought e.g. buying a dress, and thinking that I should no have purchased it.

Elements of overpersuasion the “Ordorizzi” test

a)Discussion of the transaction at an unusual or inappropriate time

b)Consummation of the transaction in an unusual place

c)Insistent demand that the business be finished at once

d)Extreme emphasis on outward consequences of delay

e)The use of multiple persuaders by dominate side

f)Absent of third party advisors to the serviant party

g)Statement that there is no time to consult with financial advisors or attorneys

Quasi-Contract

  • it is Contract implied in law, they are not based on apparent intention of the parties to undertake the performances in question, not are they promises. They are Obligations created by law for reasons of justice. They can exist despite the contrary intentions of a party.
  • Collins v. Lewis, guy kept cows, without the knowledge and consent of owner, BUT Ct found a quasi-contract and gave person Quantum Meruit [the reasonable value of service/good bestowed on person]

Unilateral Contract

  • A contract created where the offeror exchanges his promise for the offeree’s act. A contract which only one party promises to do something and the other party is free to act or not as he wishes

Warranties there are three types

  1. Express UCC 2 – 313 words of a party describe goods being sold the violin case
  2. Implied Warranty UCC 2-314 Merchantability: Usage of trade. Unless excluded or Modified , a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to the goods of that kind
  3. Implied Warranty UCC 2-315: Fitness for a particular purpose. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgement to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
  4. As is or exclusion or modification of warranties UCC 2-316
  • Bilateral Contract it should be big and noticeable* the important shit should not be hidden in the body of text, it should stick out and be noticeable to reasonable person
  • -see McDonald v. Mobil
  • A contract which consists of an exchange of promises. Usually, both parties promise to do something

Implied in law (quasi contract)

  • Not a real contract, no agreement between parties, conduct allows the law to impose recovery where justice requires (eg physician gives emergency services to an injured pedestrian, services not requested by victim or anyone else – law may allow recovery)

Implied in fact

  • Is a real contract, agreement between parties established through actions not words (e.g. patient visits doctor, reasonable fee implied in fact although neither party mentions payment)

The MAILBOX RULE

  • Acceptance dates from the point it leaves the accepting party’s hands [i.e. into the mailbox, into care of Fed Ex]
  • Revocation of the offer is valid upon receipt
  • Scenarios
  1. Acceptance is mailed, then rejection;-rejection gets there first, the acceptance is still valid unless the offeror detrimentally relied on the rejection
  2. Acceptance is mailed, then rejection; -acceptance gets there first, the acceptance is good
  3. Rejection mailed, then the acceptance-rejection gets there first, again the acceptance is good unless the offeror detrimentally relied on the rejection
  4. Rejection mailed, then the acceptance -acceptance gets there first, the acceptance is good

Option Contract (usual for construction contracts) Chen favors

  • § 87: an offer is binding as an option contract of it:
  1. is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
  2. is made irrevocable by statute

Firm Offer

  • UCC 2-205: An offer by a merchant to buy or sell goods will remain open for a specified time or three months max and is irrevocable even w/o consideration. Assureance of offer under these terms must be separately signed by the offeror.

Frustration of Purpose

  • § 265 Discharge by Supervening Frustration

Where, after a contract is made, a party’s principle purpose is substantially frustrated without his fault by the occurrence of the event of the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances indicate the contrary.

§ 266

Frustration of Purpose

  • ”I shouldn’t” Krell v. Henry
  • a later UNFORESEEN occurrence happens, performance is excused b/c the very fundamental purpose of the agreement is “frustrated’ by the later occurrence -you can still carry it out, but it is pointless

Acceptance

  • § 50: acceptance of an offer is manifestation of assent by the offeree to the terms of the of the offer in manner prescribed or authorized in the offer.
  1. § 69 usually silence is not a form of acceptance however, the restatement states “Where an offeree fails to reply to an offer, his silence an inaction operate as an acceptance in the following cases only:

(a)Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation

(b)Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree should notify the offeror if he does not intend to accept (eg past performance).

(c)Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror of he does not intend to accept

  1. An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him

UCC 2-207 Additional terms in Acceptance or Confirmation (the battle of the forms)

  1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional or different to from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different term (i.e. the offeree must say that you must agree to these things, or else no contract. Has to say this)
  2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
  1. the offer expressly limits acceptance to the terms of the offer.
  2. They materially alter it; or
  3. Notification of objection to them has already been given or is given within a reasonable time after notice of them has been received..
  1. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such terms of the particular contract consists of those terms on which the writing of the parties agree, together with any supplementary terms incorporated under any other provision of this act.

Employment Contracts

  • The courts will only mandate public policy in two settings.
  1. A discharge stemming from an employees reporting of unlawful conduct
  2. An employees pursuit of a compensation claim

  1. Contract: Definitions & Basic Elements
  1. contract: a promise ( a future commitment: executory) or set of promises for the breach of which the law gives a remedy, or the performance of which the law recognizes as a duty. 2rsc(1)
  1. unilateral: promise in exchange for a performance
  2. bilateral: promise in exchange for a return promise
  3. implied in law (quasi-contract): not a real contract, no agreement b/w parties, conduct allows the law to impose recovery where justice requires (e.g. physician gives emergency services to an injured pedestrian, services not requested by victim or anyone else – law may allow recovery).
  • Established for the protection of fair minded men
  • A promise without consideration cannot be enforced
  • Can be based upon pre-existing debts that the promisor benefited from
  1. Do you have an actual promise
  2. Do you have consideration detriment/benefit
  3. Bargaining/mutual inducement was not possible

Reference case

Webb v. Mcgowin

P worked in a lumber yard and risked his life to save D from a fallen wooden block. D agreed to pay P every two weeks

  • D received a material benefit
  • There was a promise
  • There was an exchange
  1. Implied in fact: is a real contract, agreement between parties established through actions not words (e.g. patient visits doctor, reasonable fee implied in fact although neither party mentions payment).
  2. Option: valid contract even though offer without acceptance, instead offer promises to keep offer open for a certain period of time. Requirements to be: (1) offer is in writing and signed by the offeror (2) recites a necessary consideration (3) proposes an exchange on fair terms within a reasonable period of time 2RSC87 (1)(a) offer reasonably expected to induce action/forbearance of substantial character, which does, is binding option contract to the extent necessary to avoid injustice. 2RSC87(2)
  1. promise: manifestation of intent to act or refrain from acting in specified way, made so as to justify the promisee in understanding a commitment has been made. 2RSC(2)
  1. express: stated in words either oral or written. 2RSC(4)
  2. implied (law/fact): inferred wholly or partly from conduct. 2RSC(4)
  1. bargin: manifestation of mutual assent to an exchange (promise for return promise or performance). Promise or return promise must be sought by promisor in exchange for his promise or begin or render a performance. 2RSC (18)

  1. Enforcing Promises

Three theories: enforceable contracts