Contracts I – Outline – Maggs – Fall 2010

Contract – A promise that the law will enforce

Breach of contract – D promised this and didn’t keep it

How do courts enforce promises?

  • Damages (money) – what was the promise worth or what is it going to take to put the plaintiff in the same position he would have been had the promise been kept
  • Specific performance – ordered to do exactly what you promised to do
  • This is often difficult to enforce – see later

Bases for Enforcing Promises – a sufficient part of a promise that court sees that makes a promise enforceable

  1. Historical Bases
  2. Covenant – agreement entered by an actual seal
  3. Why was wax seal used as a basis for enforcement
  4. It provided EVIDENCE that a promise was made
  5. It was CAUTIONARY because people realized what they were getting into by taking time to put a wax seal on there
  6. Wax seal is no longer a basis for enforcement bc states said the solemnity of the seal lost favor bc every document began to have a seal placed on it
  7. Consideration as a Basis for Enforcement
  8. Consideration –(1) a promise or performance (2) bargained for in exchange for a promise§ 71
  9. Promise or performance (action or forbearance)
  10. Forbearance – is not doing something
  11. Promise – 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
  12. Bargained for – is sought after and given
  13. Why is consideration a basis for enforcement?
  14. Very big economic importance of bargains
  15. Protect and build interests by entering into bargains
  16. Gives you both sides of the argument and explanation for why a bargain occurred
  17. Arguments for why there is no valid promise or performance:
  18. Invalid Claim
  19. A promise to bring a claim can be used for consideration if the claim was made in good faith and there was a reasonable belief that the claim was valid, even if it was invalid
  20. Reasonable belief – is what would a reasonable person think in these circumstances
  21. Fiege v. Boehm – D promised to pay child support for P’s bastard child and P promised not to bring suit for bastardy against D. D stopped paying when he found out that the kid wasn’t his. However, the promise was made in good faith and reasonable belief and therefore there was consideration on the promise.
  22. Illusory Promise
  23. Illusory promises cannot be used for consideration unless there is an implied term that makes it non illusory
  24. Illusory Promise – sounds like a promise but makes no real commitment
  25. Implied terms in fact (I will give an easy exam – means that the exam will be for us, this semester, and easy for us not him)
  26. Implied terms in law (Residential lease, that the place will be habitable is implied)
  27. Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement because we’re trying to further social good
  28. Strong v. Sheffield – D promised to pay husband’s debt and P promised that he wouldn’t collect the money until he needed it. This was illusory bc consideration is based on the agreement and the agreement said nothing about a specific time to forbear
  29. Mattei v. Hopper – D promised to convey the property and P promised to pay if he was satisfied with the leases he could get. This was not illusory promise even though it sound like one because P implied that that he would in good faith determine whether he is satisfied and thus had a commitment.
  30. Wood v. Lucy – D promised to give exclusive rights to P and P promised to give her ½ of profits. There was consideration because there was an implied promise to use reasonable efforts to promote her clothes. Why else would they make this agreement?
  31. Arguments for why there is no valid bargained for in exchange for D’s promise
  32. If consideration exists, there is no additional requirement for a benefit to the promisor or a detriment to the promisee§ 79(a)However, as a guide if no bargain, you should look for benefits and detriments in order to find consideration
  33. Hamer v. Sidway - D promised P to pay him money if P did not smoke, drink, or gamble until his 21st birthday. There was consideration here bc there was a forbearance by promisee and promise by promisor
  34. No consideration if the thing bargained for in exchange was a sham ($1 for a Porsche) § 79(b)
  35. An appearance of a bargain has no consideration
  36. If consideration exists, the things exchanged don’t have to be of equal values§ 79(b)
  37. Past performances or promises cannot be bargained for in exchange as well as future performances that were not bargained for
  38. Feinberg v. Pfeiffer Co.–P worked for D for 35 years, but it doesn’t provide consideration because those 35 years weren’t bargained for in exchange for her retirement pension
  39. Mills v. Wyman – P took care of D’s son and after taking care of D’s son, D promised to pay him back for all the care he has given him. No consideration because it was a past performance not bargained for or exchanged. Didn’t matter if it was a moral obligation.
  40. A conditional promise to make a gift is not bargained for in exchange and has no consideration. Although D may have taken certain actions to satisfy the condition, D did not seek these actions in exchange for D’s promise
  41. Kirksey v. Kirksey – D said to P that if you come and see me I will give you a house with a place to stay and live comfortably. There was no consideration because there was no bargain and no benefit to him even though there was a detriment to her. (Example: i)
  42. Forbearance (not doing something) can be used as consideration for a promise
  43. Lake Land Employment v. Columber – (This case doesn’t fit the mold for consideration) D promised P not to join a competitor company after he left his employment. Majority said that the consideration for P was that P did not fire him; thus, forbearance from terminating him. Even though D was already working there as an at-will employee before he signed the contract
  44. Dissent said this is not consideration because he was still an employee at-will and therefore got nothing out of it bc he could be fired anytime anyway for any reason
  45. Reliance as a Basis for Enforcement (“Promissory Estoppel”)
  46. Stage 1 (before late 1800s) – not recognized as a basis for enforcement (Kirksey v. Kirksey)
  47. Stage 2 (late 1800s-mid 1900s): Not recognized explicitly, but other doctrines or facts were stretched to find consideration
  48. Equitable estoppel (Syl. App. 2) – If you tell someone that they have the right to do something and then after the fact you realize they don’t have the right, you cannot sue because you gave them permission (The person has been estopped) A fact made by one party and relied on by the other
  49. Ricketts v. Scothorn–P’s grandfather said that he would pay for her and she didn’t need to work anymore. She quit her job and received no money from him. Court said there was equitable estoppel (was really promissory estoppel) and the promise was enforceable bc it would have been a huge injustice for P to quit her job on the reliance that she would get paid and then receive nothing. Executor was estopped from saying no consideration
  50. Allegheny College v. National Chautauqua County Bank – P gave money to a college to set up a memorial fund for students preparing for the ministry. Court said this was not a gift and there was consideration bc she gave the money that they set up a memorial fund. Court said this bc they still haven’t recognized reliance yet in 1927.
  51. Stage 3 (after mid-1900s) – Recognized explicitly under new “promissory estoppel” doctrine § 90
  52. Elements of Promissory Estoppel – a promise can be enforced by reliance through promissory estoppel if P can show that:
  53. (1) D made a promise,
  54. (2) D could reasonable expect P to take action,
  55. (3) that P took action/forbearance,
  56. (4) P did the action because he was induced by the promise (taken in reliance on),
  57. (5)and enforcement is necessary to prevent injustice
  58. There is often a limitation of remedy when a promise is enforced on the basis of reliance § 90(1)
  59. Feinberg could get it all but Ricketts was young and could get another job
  60. Why is promissory estoppel (reliance) recognized as a basis of enforcement
  61. People that relied on a promise are now hurt because the promise was never enforced
  62. Examples:
  63. Feinberg v. Pfeiffer – All the elements of promissory estoppel were satisfied and she was old and could no longer get a job that paid that amount of money
  64. Cohen v. Cowles Media Co–P gave incriminating information to newspaper and D said they would not publish his name in papers. They did publish his name and Cohen lost his job and court ruled that the promise was enforceable and they breached because of promissory estoppel. Enforcement is necessary to prevent injustice
  65. Restitution as an Alternative Basis for Recovery (Syl. App. 3)
  66. Restitution – A P may seek restitution when he cannot prove that D made an enforceable promise but the D has been unjustly enriched at the P’s expense§1
  67. Was D unjustly benefitted? §22
  68. Example: is recovery of money paid to someone by mistake
  69. Amount of recovery of a benefit received should be a reasonable value § 155
  70. Measurement of recovery in a restitution action is the value of what was received
  71. Cotnam v. Wisdom – a man was injured and unconscious and went into surgery and died in surgery. P, surgeon, sued bc he didn’t receive any payment for his treatment even though the man died, he still should get paid for what he had given to him.
  72. Plaintiffs who usually do not prevail in restitution actions
  73. Officious intermeddlers §2
  74. These are people who volunteer their services when they are neither asked nor needed (I mowed your lawn now you owe me $20
  75. Exception is doctors and professionals – See Cotnam
  76. Volunteers §57
  77. These are people who confer benefits with no expectation in return
  78. People are not expected to pay when given a gift
  79. Exception again is professionals/doctors
  80. Plaintiffs who have other remedies available to use besides restitution §110
  81. If you can’t recover for tort or contract, you can try restitution
  82. Callano v. Oakwood Park Homes Corp – Pendergast had a contract with P for P to put shrubbery on D’s property. Pendergast died and never paid P, so P sued D for unjustly enrichment of D’s property. However, D is not liable to pay P bc P can always sue the Pendergast estate for the money
  83. “Moral Obligation” as a Basis for Enforcement
  84. Moral Obligation is not a general basis for enforcing a promise – See Mills v. Wyman
  85. These only occur because the person made a new promise after the first promise (He didn’t have to)
  86. These are exceptions because there was a basis for enforcement in the original promise but then one of the following things happened
  87. Courts will enforce a gratuitous new promise reaffirming an old obligation (legit promise) that was:
  88. Discharged by the statute of limitations §82(1), note(2) p. 51
  89. Statute of limitations is a certain amount of time you have to bring an action against someone
  90. Discharged by bankruptcy proceedings§83
  91. When you declare for bankruptcy your debts are wiped clean
  92. Promisor’s prior infancy §14,85
  93. See section on infancy
  94. In a few states, moral obligation is a basis to enforce a promise to pay for a material benefit previously that P conferred on D in order to prevent injustice
  95. Webb v. McGowin – P saved a man’s life and the man promised to pay him a certain amount of money every other week for the rest of his life. The payments kept coming until the man died and P sued D, the executor. Could not recover for consideration, reliance, or restitution. The court allowed enforcement of it because it was going to prevent great injustice.
  96. Some courts reject thisDementas

Contract Formation

Typical Formation of a Bargain

  • Preliminary Negotiations
  • Offer by offeror
  • If still in preliminary negotiations there is no offer made
  • Acceptance by offeree
  • Need an offer and exceptance
  1. Assent§21
  2. A promise is not enforceable if the promisor sufficiently indicates that he or she does not assent to be bound by the promise
  3. Assent can be expressed or implied by the context
  4. A promise is not enforceable if:
  5. Promisee knows that promisor did not assent; OR
  6. A reasonable person would conclude that the promisor did not assent
  7. Lucy v. Zehmer- P and D were at a bar drinking and D said that he would sell to P his farm. They drafted multiple contracts on bar tab receipts then D signed it and made his wife cosign it. The next day, D claimed that it was just a drunk joke, but the court ruled it was enforceable bc a reasonable man would have thought that D assented to the contract b/c they looked at D’s outward expression towards P.
  8. Offer §24,26
  9. Offer – is a “manifestation of willingness to enter a bargain” that invites acceptance
  10. Examples:
  11. Giving your absolute minimum price is not an offer (I will not sell unless I were to get $5)
  12. Owen v. Tunison – D said that I will not sell unless he was to receive $16,000 and P said that he accepted at that price. There was no contract here because there was never an offer.
  13. Harvey v. Facey – P asked if you will sell us land to D and D replied “lowest price is 900 pounds”. P said they accepted; however, the court ruled that they were still in preliminary negotiations and no offer has been made yet.
  14. Advertisements and price quotes generally are not offers; however, there are exceptions (see 2)
  15. Usual explanation for general rule is you can’t reasonably be expected to sell the advertised thing at that price to every person in the world
  16. Exceptions are factors that negate these expectations such as false advertising laws, stating a specific limited quantity, or inviting for a specific action
  17. Fairmount Glass v. Crunden-Martin – D gave a quote to P saying that if they accepted immediately they could get those deals. Even though price quotes normally aren’t offers this was an offer bc it gave them an enticement to accept right away (if accepted immediately and not later than May 15)
  18. Lefkowitz v. Great Minn. Surplus – D had an advertisement to sell a pin for $1 and when P went to buy this they wouldn’t sell it to him bc of a house rule (he was a man). The court said that if an advertisement is clear, definite and explicit, and left nothing open for negotiation, then it is an offer. P accepted and you can’t change rules after acceptance
  19. Acceptance

Having Acceptance of an offer to form a contract

  1. What was the offer?
  2. Did the offer invite acceptance by a promise or by complete performance?
  3. An offeror may invite the offeree to accept by completing a performance (unilateral contract) or by making a promise to perform (bilateral contract) §32
  4. Even if an offer describes one manner of making a promise, the offer also may permit other manners. Allied Steel v. Ford Motor
  5. Did the offeree promise or perform?
  6. If the offer invites for a complete performance, acceptance occurs only when performance is completed §4
  7. If the offer invites for a promise to perform, acceptance can be made either expressly by words or implicitly by starting to perform §4
  8. If the offeree made a promise, was it made in a permitted manner?
  9. If offeree promised to perform, the promise must be made in a manner that was permitted by the offer §30(2)
  10. Was notice required?
  11. Notice of acceptance is not required for acceptance by complete performance unless it is requested by offeror. §54(1)Carlill v. Carbolic Smoke Ball
  12. Notice of acceptance is required for acceptance by promise to perform unless it is waived by offeror. §56White v. Corlies
  13. Was notice provided?
  14. If notice is required, the offeree must provide notice of acceptance.
  1. Examples:
  2. Int’l Filter v. Conroe Gin– P wanted to sell machine to D. D wanted to cancel and P sued saying that D promised to buy it.
  3. White v. Corlies and Tift – Offeror wanted a promise in return and offeree started to perform by working on it. Since it was a promise the offeror wanted notice was required and notice was never given. Thus, there was no contract.
  4. Evertite-Roofing v. Green–Greens made the offer and wanted a promise in return from Evertite. Commencing work was a proper way of accepting. Notice was required and when the worker showed up there was another company already working on the roof. Court said that Green breached contract bcEvertite did accept the offer in a reasonable amount of time from when the offer was made.
  5. Carlill v. Carbolic Smoke Ball – advertisement was an offer bc it invited a specific performance of someone to accept and if smoke ball didn’t work you would get your money back. Offeree accepted by using the smoke ball in the correct way and proper amount of time and still got sick. Notification was not required bc it was acceptance by a complete performance and therefore Carlill had a legit claim for her money for completely performing what was asked.
  6. Allied Steel v. Ford–Ford wanted a promise to perform as acceptance in a specific manner by sending a copy of acceptance to Ford. However, Allied already started working at Ford’s place. Thus, court said that a contract was in effect bc what Ford wanted was merely a suggested method of acceptance, not an exclusive.