Contracts I Quiz 1

What is a contract?

a promise or set of promises for the breach of which the law gives remedy, or the performance of which the in sone way recognizes as a duty Restatement (2d)&1)

executory contracts

agreements that call for future performance

Elements of a contract

• promise(s)

• legally enforceable: Breach (law gives a remedy) or Performance (law recognizes a duty)

carnival cruise lines, inc v. shute

• shutes go on ship’s deck and eula fell on the deck and was injured

• is CCL liable for her injuries?

• they are not liable because the terms and conditions said they couldnt even though it was small

the 2 elements of contract formation

• mutual assent

• consideration

mutual assent

• promise or set of promises

• offer and acceptance

consideration

• legally enforceable

formation of a contract meaning

• formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration

• contract formation requires objectively determined mutual assent and consideration

Ray v Willaim G. Eurice Brothers

• Defendant William G. Eurice & Bros., Inc., entered into a contract to build a house for Plaintiff Ray. After signing the contract, the parties disagreed as to which specifications were to be used

• did eurice’s outward actions indicate their assent to the contract?

• eurice breached contract to build Ray’s house according to Ray’s specifications

Subjective Test - Meeting of the Minds

• what did parties actually intend?

• was there a meeting of the minds?

• Ray - T court

Objective Test - Mutual Assent

• what would a reasonable person conclude the parties intended?

• what were the parties’ actions

• Ray - Court of Appeals

Mutual Assent

manifestation of mutual assent traditionally takes the form of offer and acceptance

Offer

• manifestation of intent to enter into a bargain if other party assents

• no offer if the other party knew or should have known no intent to be bound without further assent

• creates power of acceptance in other part

• is the manifestation of willingness to enter into a bargain so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it

acceptance of offer

acceptance is the manifestation of assent to the terms of the offer in the manner permitted by the offer

Lucy v Zehmer

• a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in beliving that he intended a real agreement

Leonard v. Pepsico Inc.

• video ad campaign

• obviosu absurdity of the commercial…no objective person could reasonably have conduded that the commercial actually offered consumers a harriet jet

the three C’s

• commitment to offer

• certainty of terms

• communication to offeree

commitment to offer

willingness to enter into the bargain

certainty of terms

reasonably certain as to the contract terms

communication to offeree

offer communicated to offeree

Bilateral contracts

• both parties make a promise or set of promises

• acceptance via promise

• formed through offer and acceptance

• parties mutually agree to the terms

• examples: provision of service, sales of goods

• irrevocable upon acceptance

• RAY V WILLAIM G EURIC BROS - promise of $$ for promise of building

Lonergan v Scolnick

• Plaintiff Lonergan, responded to an ad placed by Defendant, Scolnick for land the Defendant was interested in selling.  Plaintiff corresponded with Defendant through a series of letters.  Defendant sold the land to a third party.

• was an offer made that L’s response constituted an acceptance resulting in the formation of a contract

• THERE IS NO OFFER IF THE PERSON RECEIVING THE OFFER KNOWS THAT THE PERSON MAKING THE OFFER DOES NOT INTEND IT TO BE AN OFFER

• S and L did not enter into any contract, since S did not make an offer to L which L could accept

• ADVERTISEMENTS ARE INVITIATIONS TO RECIEVE OFFERS and not an offer in themselves

Lefkowitz v Great Minneapolis Surplus Store

• newspaper advertisement for coat, store refused to sell to P

• whether newspaper ad was n offer that P could accepT

• BUT WHEN THE AD IS CLEAR, DEFINITE, AND EXPLICIT, AND LEAVES NOTHING OPEN FOR NEGOTIATION, IT IS AN OFFER

MAILBOX RULE

• an offer must be received to be valid, may be revoked until accepted

• acceptance of an offer is valid as soon as the party accepting puts it in the mailbox unless the party making the offer has said they need to recieve the acceptance in order for it to be valid

• OFFER IS EFFECTIVE ON RECEIPT

• ACCEPTANCE IS EFFECTIVE ON MAILING

normille v miller

• Plaintiffs Normile and Segal both attempted to purchase a piece of real estate from Defendant Miller. Normile first submitted a bid, but Plaintiff responded with a counteroffer. Prior to Normile’s acceptance of Defendant’s counteroffer, Defendant sold the property to Segal

• was the contract formed between the seller Miller and the propestove purchaser Normile for the sale of the real estate?

• did Normile effectively accept the counteroffer made my miller

• IF THE PARTY CHANGES THE TERMS TO THE OFFER, THEY REJECT THE ORIGNAL OFFER AND MAKE A COUNTEROFFER, THERE MUST BE MUTUAL ASSENT TO THE SAME TERMS

• COUNTER OFFER MAY BE REVOKED

• THE PROSPECTIVE PURCHASER CANNOT ACCEPT THE OFFER AFTER THEY RECIEVE NOTICE THAT THE COUNTEROFFER HAS BEEN REVOKED

COUNTER OFFER

• a counteroffer is an offer made by an offeree to his offeror realting to the same matter as the orignal offer and proposing a substituted bargain differing from that proposed by the original offer

• an offeree’s power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree

• TERMINATES ORIGNAL OFFER

revocation

is before aceptance, rejection or counteroffer of the offeree

unilateral contracts

• promise in exchange for performance

• acceptance via performance (substantial or start of)

• examples: offers of rewards, real estate commisisons

• irrevocable upon performance: substantial performance restatement 1 and start of performance restatement 2

• COOK V COLDWELL BANKER (promise of $ for completing sales commission)

if the offer is ambiguos as to the manner of acceptance…

then the offeree can accept by either promising to perform what the offer requests or rendering the performance

Cook v Coldwell Banker

• Plaintiff Cook was a real estate salesperson for Defendant Coldwell Banker at the time Defendant instituted a bonus program. After receiving the first part of her bonus, Plaintiff was informed that receiving the remaining portion of her bonus was contingent on continued employment. When Plaintiff left her job, Defendant refused to give her the remainder of her bonus

• IN THE CONTEXT OF A UNILATERAL OFFER, THE OFFER MAY NOT BE REVOKED WHERE THE OFFEREE HAS ACCEPTED THE OFFER BY SUBSTANTIAL PERFORMANCE

• P accepted the offer through substantial performance, entitled to bonus

Restatement 2 section 45

• offeror is precluded from revoking the offer once the offerree has begun performance

Restatement 1 section 45

offeror is precluded from revoking the offer once the offeree has done substantial performance

unilateral contract - acceptance by return performance

example: lost dog, person can only accept the reward money offer by actually finding the dog and returning to the offeror

manner of acceptance - ambiguous

offer can be accepted by either return promise or performance

walker v keith

• Plaintiff lessee, entered into a 10 year lease agreement with the Defendant lessor. The lease agreement included an option to renew the lease for an additional ten years, but did not set the rent amount for the additional ten years

• was the rent clause, allowing an option to extend, so indefinite and uncertain to make it unenforceable?

• ENFORCEABLE, A CONTRACT MUST SPECIFY ALL MATERIALS AND ESSENTIAL TERMS AND LEAVE NOTHING TO BE AGREED UPON IN THE FUTURE

• CLEAR AND DEFINITE

Quake construction inc v american airlines

• The Defendant was expanding its facilities at O’Hare International Airport. Jones was hired by the Defendant to prepare bid specifications, accept bids, and award construction contracts. The Plaintiff submitted a bid to Jones. Jones notified the Plaintiff orally that the Plaintiff had been awarded the contract. The Plaintiff was informed that a written contract prepared by Jones would be received shortly. To aid the Plaintiff in securing subcontractors, Jones sent the Plaintiff a letter of intent. The letter of intent indicated that a written contract would be prepared and that Jones could cancel the letter of intent if the parties failed to agree on a fully executed subcontract agreement.
  The Plaintiff and Jones discussed changes to the contract and Jones again told the Plaintiff that a written contract would be drawn up. At a meeting with the Plaintiff’s subcontractors and government officials, Jones announced that the Plaintiff would be the general contractor for the project. Immediately following the meeting, the Defendant told the Plaintiff that their involvement with the expansion was terminated.

• LETTER OF INTENT IS ENFORCEABLE IF THE PARTIES INTENDED IT TO BE CONTRACTUALLY BINDING

• RELIES ON PARTIES INTENT TO BE BOUND

agreement to agree - binding

obligating parties to perform

Agreement to agree - Not Binding

parties intend to continue discussions but accept no obligations

agreement to agree - binding obligation to negotiate

in good faith, but not bound to further performance

enforceable contracts include…

essential terms that are definite enough for a court to enforce

CONSIDERATION

legally enforceable

• benefit detriment analysis

• bargained for exchange analysis

consideration: benefit/detriment anaysis

consideratioin exsits when there is

• a benifit to the promisor or

• detriment to the promisee on account of the promise of the promisor

hamer v sidway

• Story (D) agreed with his nephew William (P) that if P would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became 21, D would pay him $5,000. When P became 21 he wrote a letter to D stating that P had performed his part of the agreement and had earned the $5,000. P and D agreed that $5,000 plus interest should remain with D until P was capable of taking care of it. D died without paying P the $5,000 plus interest. Judgment for D. P appealed

• rule: CONSIDERATION FOR AN ENFORCEABLE PROMISE MAY EITHER BE IN THE FORM OF A BENEFIT TO THE PROMISOR OR A DETRIMENT TO THE PROMISEE

• A CONDITIONAL PROMISE IS ENFORCEABLE

CONSDIERATION: BARGAINED FOR EXCHANGE

• PROMISE OF EACH PARTY MUST INDUCE PROMISE BY THE OTHER PARTY IN A BARGAINED FOR EXCHANGE

• to constitute consideration, a performance or return promise must be bargained for

• a performance is bargained for if it is sought by the promisor in exchange for his promise and it is given by the promisee in exchange for that promise

• recirpocal promises

• bargaining not necessary

• beneift to the promisor is indicitive of bargain

Penny Supply Inc v American Ash Recycling Corp of Pennsylvania

• Pennsy Supply, Inc. had received without charge, a hazardous material from American Ash Recycling Corp. of Pennsylvania (American Ash) (D). Pennsy’s Supply (P) argument is that, disposing of this hazardous material gives enough grounds to result in consideration which is necessary to support various breach of contract, warranty and merchantability claims

• WAS THERE A BARGAINED FOR EXCHANGE SUCH THAT AN ENFORCEABLE CONTRACT INCLUDING WARRANTIES WAS FORMED?

• PROMISE OF EACH PARTY MUST INDUCE PROMISE BY THE OTHER PARTY

• DETRIMENT INCURRED MUST BE QUID PRO OR THE PRICE PROMISE AND THE INDUCEMENT FOR WHICH IT WAS MADE

Condition on a promise to make a gift

• is it consideration or a condition on gift?

• a promise to make a gift with strings attached

• may be bargained for exchange or may merely express one of the limits on the gift, the condition is not part of an exchange

Consideration promises to make gifts

• consideration is a reciprocal exchange between two parties

• promises to make gifts are not exchanges

• promises to make gifts are generally not enforceable

dougherty v salt

• Plaintiff Dougherty, at eight years old received a promissory note from his aunt for $3,000 payable at her death “nice boy”

• Rule: consideration can be inferred to exist where writing states consideration has been recieved

• exept, when evidence rebuts inference

• A PROMISE TO MAKE A GIFT IS NOT ENFORCEABLE

Plowman v Indian Refining Co

• Plaintiffs, Plowman and seventeen others similarly situated or their estates, worked for Defendant Indian Refining Co., for many years. Defendant offered to pay Plaintiffs one-half of the wages currently being earned. Plaintiffs remained on the payroll, receiving the offered money, but did not render any services other than coming to the office for their remittance

• consideration? - past performance and moral consideration

whats not consideration?

declaration that consideration exists contrary to the evidence

is it consideration or something else?

what types of arrangements lack consideration?

No bargained for exchange

• gifts

• past consideration

• moral obligation

• illusory promises

Harris v time

• 3 year old boy , received an envelope in the mail from Time, Inc. , offering a free calculator watch “just for opening [the] envelope.” Joshua’s mother opened the envelope and learned that a subscription to Fortune magazine was required in order to receive the watch. After Time refused to provide the watch, Joshua’s father, a public interest attorney, filed a class-action suit along with Mark Harris and Richard Baker (plaintiffs) against the company for breach of contract, unfair advertising, and promissory estoppel and fraud. Plaintiffs sought declaratory and injunctive relief and $15 million in punitive damages. trial court granted Time’s motion for summary judgment and dismissed the complaint after finding the plaintiffs’ claims to be “de minimis.” Plaintiffs appealed

• act of opening mailer constitutes consideration for times promise to give free watch in exchange for the act

• grossly insufficient consideration makes the contract unenforceable

batsakis v demotsis

• Plaintiff, Batsakis, loaned Defendant, Demotsis, 500,000 drachmae. In exchange for the loan, Defendant signed an instrument promising to pay Plaintiff $2,000 in U.S. currency. The 500,000 drachmae were worth approximately $25.00 at the time.

• mere inadequcy of consideration will not void a contract

marshall durbin food corp v baker

• A contract that intended to pay Baker (P), a former employee of Marshall Durbin (D), his salary for five years upon the happening of certain triggering events was argued against by Marshall Durbin (D) because the contract lacked consideration.

• Rule: promise of illusory promise does not destroy possibility of contract, instead of possibility of a unilateral contract where party can accept by performance

• court found there was consideration because the company benifited from bakers at will employment

illusory promise

• illusory promise are words in promissory form that promise nothing

• are not enforceable

• if the promior performs then a unilaterla contract is formed

• if the man says i am going to marry you and then repsetns a ring it becomes a unitlaterla contract