Contracts

What three recurring principles fight for dominance in contract law?

Autonomy, Efficiency, Integrity

What three principles often justify exceptions to rules in contract law?

Paternalism, administrability, social justice

What is the difference between rules and standards?

Rules provide predictability and administrability; standards aim to promote the principles of the laws

Dispositional vs. precedential effects of judicial decisions

Refers to how judicial decisions can either establish new legal standards (precedential) or simply resolve specific disputes without broader implications (dispositional).

Text vs context in contract interpretation

Text refers to the explicit wording of a contract, while context encompasses the surrounding circumstances and intent of the parties involved that can also influence interpretation.

Define a contract (§1)

A promise or set of promises enforceable by law

Define a promise

A manifestation of intent to act a certain way where the promisee understands that a commitment has been made

Define a bargain (§3)

An agreement to exchange promises or to exchange a promise for a performance or to exchange performances

What is a Bilateral Contract?

Promise for promise; both parties promise to perform some action in the future. Ex: Buyer promises to pay price, seller promises to deliver goods

What is a Unilateral Contract?

Promise for performance; only one party (offeror) promises future action when certain specifications are met (e.g., reward posting, insurance policies)
Ex: reward posting, insurance policies

What did hairy hand case establish?

man “promises to make hand 100%” – opinions are not promises, but statements w/ specific are more likely to be considered promises
- Expectation damages

What is consideration

The thing each party gets

What four things must consideration not be?

Nominal, illusory, gifts or past

What must there be for a contract to form?

Something of worth must be bargained for and exchanged

What is a bargain

The exchange of consideration

What does §17 state contract formation requires?

A bargain in which there is a manifestation of mutual assent to the exchange and consideration.

According to §71, what must consideration be?

A performance or a return promise that must be bargained for (satisfied if it’s sought by promisor and given by promise).

What is not consideration according to §73

§73 Performance of a legal duty owed to promisor is not consideration

What is a gratuitous promise?

A promise offered with no expectation of any compensation, lacks consideration.

What did Hamer v. Sidway establish concerning forbearance?

Something "promised, done, forborne, or suffered" by promisee counts as consideration; forbearance of legal right constitutes consideration.
- Uncle pays for nephew’s forbearance of vices. Nephew’s forbearance was sought by uncle in exchange for his promise

What id Langer v. Superior Steel establish concerning forbearance from a unilateral contract?

Abstaining from legal right to competition employment is consideration. If promisor benefits from condition, most likely consideration (+promisee suffered).
- retired man received letter offering payments for loyalty & no competition employment

What concepts did In Re Greene reinforce regarding consideration?

Past actions are not consideration; nominal consideration ($1) is insufficient. Money for money bargain difficult to enforce
- man cheats w/ woman and relationship ends, man pays woman $$$ and woman releases hi from claims and pays him $1, among other “stuff”

What concepts did Mills v. Wyman reinforce regarding consideration?

Moral obligations are not sufficient consideration; past acts are not consideration; past and moral don’t count
- dude left family and got sick and someone took care of him; dad didn’t pay for taking care of him voluntarily

What is the traditional rule regarding contract modification established in Levine v. Blumenthal?

modification of contract requires new consideration
- bad economy and lessor agrees to not increase rent second year; after lessee leaves lessor demands the difference in not increasing. modification of contract requires new consideration

What is the traditional rule regarding contract modification established in Alaska Packers’ Assn?

Modification of contract requires something more than existing obligation. §73 performance of contractual duty is not consideration for a new promise.
- fishing employees threaten to stop work if they don’t increase pay; company agrees and later refuses

Under §89, when is a modification of duty binding without new consideration?

if it is fair and equitable in view of unanticipated circumstances.

Why was the promise in Kirksey v. Kirksey deemed a gratuitous promise?

The promise of housing was a gratuity; the condition of selling the house and moving was insufficient consideration.

• brother-in-law told lady to sell house and move down, provided housing for 2 years

Conditional Promises

performance that serves as consideration is also the condition that must be satisfied; condition doesn’t necessarily create consideration

Consideration vs Condition

Consideration is often in the form of a condition, but not every condition can be labeled consideration.

• For example, a condition that establishes the time, place, or manner for reception of a gift is not consideration.

What does Allegheny College establish regarding conditional promises surrounding charities?

Courts tend to look for ways to find consideration for charitable pledges.

• lady donated to school and wanted it to be in her name – pledge upheld by court

When is a promise considered illusory?

If the condition of performance remains entirely within the discretion of the promisor or if performance is impossible.

What language will typically be held invalid for lack of consideration?

Language such as “if I want to” because the promisor retains the right not to perform at their own discretion.

• Courts may read limits in order to uphold contract

Exceptions to “illusory promises”

exclusivity contracts, which require reasonable efforts or best efforts (reasonable diligence and good faith); requirements and supply contracts, which require good faith and reasonableness limits; and satisfaction contracts

What are the different Satisfaction Contracts standards

For commercial it is a reasonable person standard, and for personal tastes it is a good faith standard.

Why do courts not allow illusory promises?

Paternalistic reasons, §33 terms must be reasonably certain

What duty does UCC §2-306 impose in exclusivity contracts for goods?

Obligation to use best efforts. (good faith)

What did Strong v. Sheffield establish about retaining the right not to perform?

Retaining the right not to perform creates no real promise or obligation, making the promise illusory. [Illusory b/c no actual commitment to forbear]

• business sold on promissory note for $ due payable on demand; partner endorsed loan in exchange for forbearing collection

How did the court uphold the contract in Lady Duff-Gordon despite the seeming discretion of the promisee?

Because of the exclusivity, the court assumed the dude had a promise to use reasonable efforts in the contract, making it valid.

• Dude got exclusive right to designer endorsement – interesting b/c dude’s performance conditioned on him making profit (which is under his discretion)

What did Rehm-Zeiher v. FG Walker establish about requirements contracts?

No mutuality in obligation b/c D’s promise illusory. A contract lacking mutuality in obligation is unenforceable (Requirements K still require mutuality).
- P agrees to sell D different # of whiskey for diff $ but D can take diff. amount if he wants

What is Mattei v. Hopper reasoning behind enforcing the “illusory” contract?

Satisfaction clause made in good faith doesn’t make it illusory, valid K.
- landlord would buy land if he obtained satisfactory leases, he did but offer was revoked

What is mutual assent?

voluntary assent on both sides for K

What are the two approaches to determining mutual assent?

Subjective intentions or objectively reasonable understanding.

Which approach do courts tend to use?

Objective approach, looking at the words and actions of the parties and construing them in line with what a reasonable party would understand them to mean. Secret intent is irrelevant.

Which approach protects parties’ reliance on counterpart’s words and actions and encourages clarity?

Objective approach.

What does the objective approach ask?

Does it look like we agreed? Ease of enforcement since we don’t look beyond actual words & conduct

Can incomplete contract still be enforced?

can be enforced as long as the essential terms of the contract have been agreed upon. Courts will usually look at the (objective) intent to be bound.

• Agreements in principle, letters of intent, and agreements to agree are not usually considered binding, but may be binding if there is enough agreement to find an intent to be bound.

What does §22 say about mutual assent?

manifestation of mutual assent ordinarily takes offer & acceptance

What does UCC 2-204 say about mutual assent?

time of agreement can be undetermined; terms may not be complete as long as parties intended to K and there is reasonably certain basis

Which approach protects the autonomy of individuals entering a contract?

Subjective approach

What does the subjective approach ask

What did each party actually intend?

o Voluntary & autonomy

What did Embry v. Hagardine (objective) establish about unexpressed intention?

Law imputes intent based on reasonable meaning of words and acts, so unexpressed intention is not considered.

employee thinks contract renewed but fired after 3mo. ▪ Reasonable person would’ve understood employer’s words to imply renewal, so valid for renewal

What did Lucy v. Zehmer (objective) establish about mental assent?

• Valid K b/c it objectively looked like a contract, mental assent of parties is not requisite if words or acts reasonably show assent.

• agreement to sell land on back of receipt while drinking; Zehmers thought it was bluff/dare,

What did Empro v. Ball-co (subjective) establish about letters of intent?

Letters of intent not a contract; unless incomplete contract sets out the essential terms

• letter of intent to purchase assets but buyer insulated himself like hell in letter; buyer tries to enforce K when seller negotiates w/ another party. No K b/c letters of intent (agreement in principle) only set stage for nego.

What did Joseph Martin Delicatssen v. Schumacher (Subjective) establish about agreements to agree?

A mere agreement to agree, where a material term is left for later negotiation, is unenforceable; terms must be sufficiently certain and specific (§33).

• tenant may renew this lease at rate to be agreed upon; landlord asked for high price and tenant sued.

When does an offer exist?

exists when a reasonable person in the position of the offeree would believe that assent is all that is necessary to form a contract.

Examples of Offers and not offers

• Price quotes and ads are not generally considered offers but can be if it is especially detailed or seeks performance.

• Rewards are considered to be unilateral contracts and can be accepted only by performance

Define an Offer (§24).

A manifestation of willingness to enter bargain, where the other person is justified in understanding that his assent is invited and will conclude it.

What does §22 say about mutual assent formation?

mutual assent possible w/o knowing exact moment of formation

What does Interstate v. Barclay say about price quotes?

There was no contract, mere quotation of price must be distinguished from an offer
- manufacturer sent over price quote for fiberglass and after purchase order received, said it couldn’t fill order

When can a price quote amount to an offer (Nordyne v. International Controls)?

Valid contract b/c offeree could understand it to be valid offer. If it is detailed enough, considering factors like the extent of prior inquiry, completeness of terms, and number of persons communicated to.
- seller sent price quote & samples, buyer signed but now argues, quote wasn’t offer

What does Craft v. Elder say about sale ads?

ordinarily, newspaper ad not an offer, but offer to negotiate

• ad for sale of machine as Thursday only special, not an offer

What test determines if an advertisement constitutes an offer (Lefkowitz v. Great Minneapolis)?

Whether facts show that some performance was promised in positive terms in return for something requested, or where the offer is clear, definite, and explicit, leaving nothing open for negotiation.

• ad for sale of fur to first comer. Ad constitutes offer

What does Consolidated Freightways v. Williams say about rewards?

Published reward is an offer for unilateral contract, which can be accepted by, and only by, performance
- reward sign posted by employer, employee found thief and wants reward. Reward was offered to employees including P, perf. was acceptance

What is acceptance?

manifestation of assent by offeree to terms in manner req. by offeror (§50)

What is the Mirror Image Rule?

Acceptance must match the offer exactly or else it’s a counteroffer (§58).

What is the offeror?

“master of offer”

What does §61 say about Mirror image rule?

softens ^ - request of change to terms doesn’t invalidate acceptance unless acceptance conditioned on changed terms

What is required for acceptance in a bilateral contract vs. a unilateral contract?

Bilateral requires acceptance in the form of a promise (notice required); Unilateral requires acceptance in the form of performance (notice not required).

Can silence or inaction constitute acceptance?

No, acceptance requires a voluntary act.

What does Carlill v. Carbolic Smoke Ball say about unilateral contracts?

Detriment to self can be consideration. Notification of acceptance not required, esp. in unilateral K.
- ad for X offers $ for whoever still gets flu after taking X, buyer got flu. Ad detailed enough for offer, buyer’s performance was acceptance, valid K

What did Glover v. Jewish War Veterans establish about acceptance?

Acceptance is impossible unless the offeree knows of the offer.

• offer of reward for tips on suspect, lady learns of reward after providing tips. No acceptance so no reward; may be diff if reward is being offered by gov.

What does Corinthian Pharmaceutical v. Lederle Lab say about non-comforming goods?

Under UCC 2-206b, If the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer, shipment of non-conforming goods does not constitute an acceptance.

• buyer finds out supplier prices would go up, puts in big order at low $ but supplier only gives some

• Notification properly made by D’s letter, and shipment of nonconforming goods is treated as a counteroffer, and P may or reject the counteroffer under normal contract rules

What does UCC 2-206b say about non-conforming goods

“...but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer”

How does UCC 2-207 further soften the mirror image rule for goods?

acceptance doesn’t have to be mirror-image, but offeree must still do smth. that manifests intent to accept & form K

What are the four means of termination of the offeree’s power of acceptance (§36)?

Rejection or counter-offer by offeree, lapse of time, revocation by offeror, or death or incapacity of offeror/offeree.

Under the Mailbox Rule, when is an offer, revocation, or rejection/counter-offer valid?

When received.

Under the Mailbox Rule, when is acceptance valid (Morrison v. Thoelke)?

When dispatched (upon deposit in mail).

What does Ever-TIte v. Green say about termination?

No termination; offer accepted when P began loading truck, power to accept terminated at specified time, or end of reasonable time

• D hires P and binding at work commencement; P goes to work after credit check but D already hired someone else

What does Dickinson v. Dodds say about offer revocation?

Promise to keep offer open had no consideration – just gratuitous and non-binding promise, option contracts need separate consideration; “purported/nominal” okay (§87)

• offer for property valid til X; sold to someone else

What does Morrison v. Thoelke say about mailbox rule?

K complete upon deposit of acceptance in mail (mailbox rule)
- sellers signed contract and sent, but before receipt they revoked their acceptance

What is a affirmative defense?

Affirmative defense contends that contract shouldn’t be enforced even if party can establish elements of a K; D has burden of pleading and proving

• Contract enforcement is consistent w/ personal autonomy and efficiency

Statute of Frauds

Verbal contracts are usually enforceable, but some need a written memorandum establishing existence and essential terms of K and signed by the party seeking to avoid K.

What is MYLEGS

▪ M: marriage as consideration

▪ Year: contracts not to be performed w/in a year

▪ Land: sale of interests in land

▪ Executor: executor pays for debts of estate personally

▪ Guarantor: person answers for duties/debts of another

▪ Sale of goods over 500 & lease of goods over 1000 (UCC§2-201)

Exceptions to Statute of Frauds

(1) full performance by one party (for 1-yr. provision), or (2) justifiable reliance (on sale of land)

What three things does the Statute of Frauds require in writing?

(i) A writing signed by the party to be charged, (ii) that identifies the subject matter and essential terms, and (iii) indicates that a contract has been made.

What kind of contract duration is not covered by the Statute of Frauds regarding the "Year" provision (C.R.Klevin v. Flagship Properties)?

K w/ uncertain duration not included; SOF only covers contracts that expressly states that performance is to have specific duration beyond a year.

• Properties: D hired P as construction manager orally, later dissatisfied w/

  work and contracts w/ another party for next part of proj.

What does McInerney v. Charter say about lifetime employment and SOF?

(minority rule) lifetime employment K must be written b/c SOF applies

• employee offered lifetime employment for turning down other offer; relationship sours and fired

What is sufficient to qualify as an e-signature under UETA (Waddle v. Elrod)?

A name in an email qualifies as an e-signature if signed executed or adopted symbol with intent to sign.

• lady got old woman to give her land so old woman sued and lady said she’d return, emails back and forth, later backs out

• K enforceable b/c SOF applies (land) and is satisfied by emails & electronic sign

WWhen is the doctrine of part performance invoked as an exception to the Statute of Frauds? (Chomicky)

doctrine of part performance invoked to relief those who substantially and irretrievably change their position in reliance on oral agreement. Preparing to build not partial performance – so no exception to SOF. Beyond injury compensable by money

• oral agreement to sell part of land, but D later wants to sell all or nothing, SOF applies (land) and oral K unenforceable b/c SOF not satisfied

What is the general rule regarding contracts made by a minor (§14)?

Voidable at the election of the minor before or within a reasonable time after the age of majority (unless for necessaries).

Purpose of infancy doctrine

• protection of minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the market place

Majority Rule regarding responsibility of minor

the minor must return what they still have, but need not make up for use or damage. (tortious behavior or misrepresentation not exceptions under majority rule)

• minor may have greater liability if they misrepresented their age or tortiously damaged

Minority Rule regarding responsibility of minor

voidable K for minor but they return benefits or depreciated value

When does contract have to be made for infancy doctrine to apply?

Contract must be made before the day before “infant” turns 18 to be voidable

Sword-shield dichotomy (infancy)

some courts more lenient on vendor if minor is suing to recover rather than defending

What is the majority rule regarding a minor who disaffirms a contract (Halbman v. Lemke)?

absent misrepresentation or tortious damage to property, minor who disaffirms K for purchase of non-necessity item can recover purchase price w/o liability

• minor buys car, few weeks later car broke and minor disaffirms K. Voidable K for minor, doesn’t need to return car but gets money back

What is the minority rule regarding a minor who disaffirms a contract (Dodson v. Schrader)?

benefit rule [pay back value of benefit received by minor] & depreciation rule [payback depreciated value]

• kid bought truck, it started breaking and he kept driving it and then it got hit, and he tried to return. Voidable K for minor, but seller entitled to setoff for decreased value of car

What does Webster Street v. Sheridan say about “necessity” for minor?

Housing not necessity so voidable, and kids entitled to recover all money paid. “necessaries” for liability of minors is a relative term

• minor tenants couldn’t pay so asked to move out but they want deposit back

What is incapacity

voidable K for mental illness or defect (2 tests under §15)