Contracts Final Outline – Professor Maggs

  1. Bases for Enforcement
  2. Requirement of a Basis for Enforcement

General Principles:

  1. When Π sues Δ for breach of contract, Π claims Δ made a promise and didn’t keep it. Π asks court to enforce the promise. Feinberg, Mills
  2. Court will not enforce Δ’s promise unless Π can show a basis for enforcement.
  3. 3 Modern bases for enforcement: consideration, reliance, and, in a few special cases, “moral obligation.”
  4. In defense, Δ may argue Π cannot show one of the three bases for enforcement.
  1. Consideration as a Basis for Enforcement
  2. General Rule: Consideration for Δ’s promise may be (1) either a promise or a performance that was (2) bargained for in exchange for the Δ’s promise
  3. Δ’s Arguments: Δ will argue that there is no consideration b/c these two elements have not been met;

a. Arguments for why there is no valid promise or performance:

  1. The promise given in exchange is a promise to settle an invalid claim, and Π did not have a good faith and reasonable belief in the possible validity of the claim.
  2. Cf. Fiege v. Boehm- Fiege promised to pay Boehm child support, she agreed not to instigate bastardy proceedings; Held- there was consideration; she had reasonable good faith belief he was father/ that the agreement was valid
  3. The promise given in exchange is illusory b/c it does not impose any express or implied commitment and cannot be consideration.
  4. Strong v. Sheffield- Strong promised to forbear cashing in on a promissory note for unspecified amt. of time if his niece would endorse it; Held- no consid. b/c promise to forbear was illusory, he could have cashed it in the next day
  5. But see Mattei v. Hopper- Mattei, Π, wanted Hopper’s land for a mall but contract said Mattei could back out if no leases, Hopper- no consid.; Held- is consid., implied term Mattei will operate in good faith; Wood v. Lucy, Lady Duff-Gordon- Wood made “implied promise to use reas. efforts” marketing DG’s s clothing line, she broke contract, entering deal w/Sears; Held- promise to represent interests of a party is suff. consid. even if promisee not specifically mandated to act (terms implied in fact)
  6. Express terms- what you specify aloud; Implied terms- implied in fact (terms a reasonable person would infer to exist) and in law (in law- based on state policy, imposing duty of good faith and fair dealing)

b. Arguments for why there is no valid bargained for exchange:

  1. The promise/performance given by Π had already been received by Δ and thus was not given in exchange for Δ’s promise
  2. Feinberg v. Pfeiffer- Pfeiffer Co. promised Feinberg a pension, she then retired, they stopped payments; Held- past service cannot be consideration
  3. The promise or performance given by the Π was not given until after the Δ’s promise, and thus was not given in exchange for the Δ’s promise. (Feinberg; Strong v. Sheffield)
  4. But see Central Adjustment v. Ingram- Held- the actual employment for 2 yrs. of 3 employees was consideration for employee’s promise not to compete; even tho the actual employment did not occur until after they’d made promise- doesn’t square w/bargain theory
  5. The Δ’s promise was a conditional promise to make a gift. Π may have taking actions to satisfy the condition, but Δ did not seek these actions in exchange for Δ’s promise.
  6. Kirksey v. Kirksey- Δ wrote sister-in-law, Π, offering her a place to live if she would “come down and see me”; Held- Δ’s promise = just a condition; no consid.
  7. The purported bargained for exchange was just a sham.

c. Invalid arguments for why there is no consideration:

  1. The promise/performance given by Π cannot be consideration, even tho it was bargained for, b/c it did not benefit the Δ or impose a detriment on the Π.
  2. Hamer v. Sidway- nephew promised not to drink/smoke/gamble in consideration for Uncle’s promise to give him $5k. Held- not necessary the promisor benefit or promise experience detriment- also in Rest. 2d § 79.
  3. The promise/performance given by Π cannot be consideration b/c it was less valuable than the Δ’s promise. (Fiege)
  1. RELIANCE as a Basis for Enforcement
  2. Definition: When a court enforces a promise on basis of reliance, the court is said to be enforcing it by means of “promissory estoppel.”
  3. General Rule: To enforce a promise based on reliance, Π must show not only reliance but also 4 other elements. Π must show that: (1) the Δ made a promise; (2) the Δ could reasonably expect the Π to take an action; (3) the Π took an action/forbearance; (4) the action was induced by (i.e., taken in reliance on) the promise; and (5) enforcement of the promise is necessary to prevent injustice. Rest. 2nd § 90 (p. 231).
  4. Δ’s Arguments: Δ will argue Π cannot show one or more of the elements. Examples:

a. The promise did not induce the Π to take any action that the Π would not have taken anyway. (Feinberg- she quit work early b/c of reliance on the pension; Pfeiffer Co. tried to argue she would have retired anyway, but Court disagreed)

b. Enforcement of the promise is not necessary to prevent injustice.

  1. Feinberg (Pfeiffer argued she could get another job; Court rejected); Cohen v. Cowles Media- Cohen gave newspaper info, wanted anonymity, they published his name, he was fired; Held- using his name wasn’t necessary; enforcing their promise was b/c unjust to him for him to get fired
  1. Policy reasons for promissory estoppel: (1) underlying theme of justice- certain promises should be enforced; (2) people ought to be able to rely on promises.
  1. “Moral Obligation” as a Basis for Enforcement
  2. General Rule: Moral obligation is not a general basis for enforcing a promise

a. Mills v. Wyman- Levi Wyman fell ill,cared for by Mills for 2 wks, then died; then Levi’s Dad promised to pay Mills, didn’t; Held- unenforc. b/c no consid.; just immoral

  1. Recognized Special Cases: Even if Π cannot show consideration or reliance, 3 types of promises are said to be enforceable on the basis of “moral obligation.” A Court will enforce a new promise by Δ to reaffirm an old obligation that was:

(1) discharged by a statute of limitations (§ 82); or

(2) discharged by bankruptcy proceedings (§ 83); or

(3) voidable b/c of Δ’s prior infancy (§§ 14, 85).

No consideration for these promises, but they are enforceable on the basis of moral obligation.

  1. Possible New Special Case: A few courts will enforce a Δ’s promise to pay the Π money in recognition of a material benefit that Π conferred on Δ. § 86(1) But most states disagree.

a. Webb v. McGowin- Π, working at mill, saw boss, Δ McG below; Webb fell w/75 lb. block to prevent it from hitting McG, becoming crippled; McG died, payments stopped; Held- Δ morally bound to continue compensating Π

b. But see Dementas v. Estate of Tallas- Tallas wrote memo of intention to change his will to give his helpful friend, Dementas, $50k; Held- not enforceable on basis of moral obligation; no consideration and no reliance

  1. Δ’s Argument: Δ will argue that the promise is not one of the special kinds of promises that courts will enforce on the basis of moral obligation.
  1. Restitution as a Substitute for Enforcement
  2. General Rule: when the Π cannot prove that the Δ made an enforceable promise, the Π may seek “restitution” from Δ if Δ has been unjustly enriched at Π’s expense. Δ must pay the reasonable value of any benefit receives from Π.

a. Cotnam v. Wisdom- Dr. Wisdom, Π, performed emerg. surgery on Harrison after car-wreck; Rst. §155- compensat’n for service in implied contract shld = value of services

  1. Δ’s Arguments: Δ will argue that there has been no unjust enrichment at the Π’s expense. Examples (these types of Πs usually do not prevail in Restitution cases):

a. There has been no enrichment b/c the Π conferred the benefit as a volunteer, manifesting no expectation of compensation. (Drs not volunteers b/c it’s how they make a living.) § 57

b. There has been no enrichment b/c Π conferred the benefit as a officious intermeddler. § 2

c. There has been no unjust enrichment at the Π’s expense b/c Π has other remedies. § 110

  1. Callano v. Oakwood Park- Callanos contracted w/Pendergrast (buying a house from Oakwood) to plant shrubs, Pend. died, house sale cancelled, Call’s sue Oakwd; Held- Π’s remedy is against Pend’s estaste (Oakwd not liable), who can recover from Oakwd
  1. Contract Formation
  2. Assent
  3. General Rule: A court will not enforce the Δ’s promise if the Π actually knew, or a reasonable person would have known that the Δ was not assenting to be bound.

a. Lucy v. Zehmer- Zehmers, drinking at bar, promised Lucy to sell him their farm for $50k; Held- a reasonable persona’s interpretation of the outward intention matters, not that they may have been just jesting; Evidence that contract was legit.

b. Intent is difficult to judge b/c there may be multiple viewpoints

c. General policy that contractual liability should be voluntary.

  1. Offer and Acceptance
  2. General Rule- If the Π alleges Δ made a promise as part of a bargain, a court will not enforce the promise unless Π can prove existence of both an offer and acceptance.
  3. Specific Rules:

a. An offer is a manifestation of willingness to enter a bargain, conditioned on the offeree’s acceptance.

  1. Preliminary negotiations vs. offer: inherent ambiguity, reluctantance to find offers b/c contractual liability should be voluntary, objective inquiry in deciding
  2. Owen v. Tunison- Owen, Π, wrote he was interested in buying Tunison’s property; Tunison wrote back that he would not sell it for less than $16k, Owen replied, saying he accepted, Tunison declined; Held: Δ’s letter was just preliminary negotiations
  3. Harvey v. Facey- Harvey, Π, telegraphed: Telegraph lowest cash price for Bumper Hall Pen, Facey: Lowest price 900 pounds, Harvey: We agree to buy for 900 pounds; Held- No legit. offer, the statement of the price was preliminary negotiations
  4. Fairmount Glass v. Crunden-Martin- C-M, Π, wrote: lowest price for order?; Fairmt, Δ, wrote: here is our offer, for immed. acceptance; Π- We accept; Δ- imposs. to book order, sold-out; Held- There was an offer & acceptance, not just a quote of prices

b. Advertisements generally are not offers unless they state a limited quantity or have other attributes indicating that the advertiser actually intended to make an offer.

  1. Lefkowitz v. Great Minn. Surplus Store- advert. for stole for $1; store refused to give to Lef b/c of “house rule”- women only; Held- advert. was an offer b/c clear, definite, didn’t say house rule, advertiser can’t impose new conditions after acceptance

c. Did the offeree accept? 6 questions to figure out:

  1. What was the offer?
  2. What type of acceptance did the offer invite?
  3. Did the offeree completely perform or promise to perform as invited?
  4. Note- sometimes offeree implicitly promises to perform by starting work.
  5. If the offeree promised to perform, was the promise made in a manner permitted by the offer?
  6. What type of acceptance is required (complete performance, promise to perform)?
  7. Did offeree provide notice of acceptance?

d. In general, an offer terminates and cannot be accepted after:

  1. The offer lapses b/c the passage of time§ 41
  2. An offer lapses after the time specified or after a reasonable time if no time is specified.
  3. The offer has been revoked by the offeror. §§ 42, 43
  4. Revocation of an offer is effective when communicated, directly or indirectly, to the offeree.
  5. Dickinson v. Dodds-; Dick found out informally the property was being sold to another; Held- no obligation to keep offer open b/c no consid.; before complete acceptance by Dick, Dodds could contract w/another
  6. An offeror generally can revoke an offer at any time before acceptance (can be indirect), unless the offeror has made an enforceable promise (called an “option contract”) to keep the offer open. (Dickinson- Court held promise to keep offer open until Fri. unenforceable b/c he hadn’t received consideration)
  7. A few courts hold that an offeror cannot revoke an offer if the offeree has relied on the offer.
  8. Drennan v. Star Paving- Π, general contractor, relied on Δ Star Paving’s offer in submitting a large bid; Held- enforceable on promissory estoppel; Π’s reliance makes Δ’s offer irrevocable
  9. The offer has been rejected by the offeree. § 38 (1)
  10. A counteroffer is presumed to be the rejection of an offer. § 39 (1), (2)
  11. Minn. & St. Louis Rwy. v. Columbus Rolling Mill- Π, Rwy., rejected by making new offer; Held- a proposal to accept on terms different from those offered = rejection of offer, ending the negotiation, unless other party accepts
  12. Under the Mirror Image Rule, a purported acceptance of an offer that contains different or additional terms is treated as a rejection and a counteroffer. (Minn. & St. Louis Rwy.)
  13. The offeror has died. §48
  14. An offer terminates upon the death of the offeror, even if the offeree does not have notice of the offeror’s death, unless the offeror has entered an option contract to keep the offer open. No req. of notice.
  15. Cf. Earle v. Angell- nephew agreed to come to his Aunt’s funeral; Issue- was it unilateral (requiring performance- not accepted until completely performed, thus not enforceable against estate) or bilateral (-promise- enforceable)

e. Mailbox Rule- unless the offer specifies otherwise, acceptance occurs upon dispatch of the acceptance.

f. Complete/ Partial Performance:

  1. If an offer invites acceptance by the rendering of a complete performance, acceptance does not occur unless and until the offeree completely performs.
  2. Cf. Carlill v. Carbolic Smoke Ball- Carbolic Co., Δ, - flu prevention device, advertised if you use, get flu, monetary reward; Carlill followed directions, got flu; Held- here notice of acceptance by Carlill not necess. b/c the Co. did not require it
  3. An offeree may accept by making a promise to render complete performance either expressly w/words or implicitly through some sort of conduct. The most common way to make an implicit promise to render complete performance by conduct is to start performing.
  4. White v. Corlies & Tift- White, builder, Π, gave estimate for office renovation; Δs made change to estimate, asking for agreement; Π just began working, then Δs countermanded; Held- Π should have given assent before beginning working
  5. Ever-tite Roofing v. Green- Greens, Δ, made contract w/E-T, then hired someone else; gave notice when E-T showed up to start roofing; Held- Notice must be given before commencement of performance; commencement began when trucks loaded
  6. Allied Steel v. Ford Motor- Allied had begun working but argued the contract had not yet been accepted; Held-acceptance of an offer by part performance in accordance w/the terms of the offer is sufficient to accept the contract
  7. If the offer invites acceptance by rendering complete performance, notice of acceptance is not required unless requested. (Carlill)

g. Even if an offer describes one manner of making a promise, the offer also may permit other manners. (Allied Steel v. Ford Motor)

  1. International Filter v. Conroe Gin- Int. Fil. employee gave proposal (prelim. neg.) to Conroe, who agreed  sent to Pres. of Int. Fil., who accepted it (nec. for contract); a mngr of Int. notified Conroe it was accepted; Held- notification of exec’s approval didn’t have to be made- it became a contract when the Pres. signed

h. The offeree’s silence cannot be an acceptance, except in a few special cases, such as when the parties’ course of dealing makes silence a proper method of acceptance. § 69

  1. Hobbs v. Massasoit Whip Co.- Held- Massasoit required to pay, even though they’d silently accepted b/c they had previous dealings where skins sent/accepted same way
  2. Exceptions: offeree accepts services by taking the benefit, previous dealings, offeror says silence is acceptance and offeree intends to accept

i. If the offer invites acceptance by making a promise, notice of acceptance is required unless it is waived. (White, Ever-Tite Roofing, International Filter)

  1. Δ’s Arguments:

a. There was no offer (manifestation of a willingness to be bound upon offeree’s acceptance). (Owen, Harvey, Fairmount Glass, Lefkowitz)

b. The offer lapsed before the attempted acceptance.

c. The offer was revoked by the offeror before the attempted acceptance, and there was no valid option contract precluding revocation. (Dickinson)

d. The offer was expressly rejected by the offeree before the attempted acceptance.

e. The offer was implicitly rejected by the offeree b/c the offeree made a counteroffer. (Minn. & St. Louis Rwy.)

f. The offer terminated before the attempted acceptance b/c the offeror died. (Earle)

g. The offer invited acceptance by the rendering of complete performance, and the offeree did not completely perform.

h. The offer invited acceptance by a promise to render complete performance, and the offeree did not make such a promise either expressly w/words or implicitly w/conduct. (White, Ever-Tite)

i. The offer invited acceptance by a promise to render complete performance and, although the offeree made a promise, the offeree did not make the promise in a manner invited by the offer. (Allied Steel)

j. Although the offer invited acceptance by silence and the offeree was silent, the offeror could not insist that silence would be acceptance. (Hobbs)

k. The offer required notice of acceptance, and the offeree did not provide notice of acceptance. (White, Ever-Tite, International Filter, Cf. Carlill)

  1. Indefiniteness § 33
  2. General Rule: A promise is too indefinite to enforce if the court cannot determine the existence of a breach or the appropriate remedy for a breach.

a. Varney v. Ditmars- Ditmars, Δ, promised Varney “a fair share of his profits,” then fired him; Held- terms weren’t reas. certain, no way to determine “fair share,” so unenforceable

b. Courts are generally reluctant to find promises too uncertain/indefinite to enforce

c. Toys, Inc. v. F.M. Burlington- F.M., Δ, entered lease w/Toys; lease gave option to renew for add’l 5 yrs. to the prevailing rate, no agrmt about new rate; Held- “prevailing rate” was definite and option to renew is enforceable

  1. A court may require less definiteness if the Π seeks to enforce the promise by means of promissory estoppel.

a. Ordinarily when preliminary negotiations fail, there is no contractual liability.

b. Hoffman v. Red Owl Stores- Lukowittz or Red Owl Stores made assurances, which Hoffman acted/ relied upon, but the negotiations failed; Held- there was contractual liability; same amt. of definiteness not required for promissory estoppel

  1. Statutes of Frauds
  2. Definition: Every state has enacted numerous statutes making many different kinds of promises unenforceable unless the promises are evidenced by a signed writing. These statutes are called “statutes of frauds.”
  3. Purpose: prevent fraud by keeping Πs from falsely claiming Δs made promises (extraordinary promises require extraordinary proof).
  4. Unintended consequence- sometimes prevents enforcement of a legitimate promise that would otherwise be enforceable.
  5. Types of Promises Typically Covered
  6. General Rule: The kinds of promises that statutes of frauds require to be evidenced by a signed writing differ from state to state.

Many states have in common statutes of frauds covering the following six kinds of promises (“MY LEGS”):