Contracts Midterm

When do you use UCC?

when the contract is for the sale of goods

• goods are identifiable and moveable at the time of contract

What do you need for there to be a contract?

Mutual Assent and Legal Enforceability

Steps to Analyzing a Contract

1) formation

• mutual assent, consideration, promissory estoppel

2) interpretation

3) problems with performance

Cohen Theories

1) The sanctity of promise: values the promise itself; there’s something inherently despicable about not keeping a promise; maintains properly organized society

2) will theory: valuing the fact that both parties intended to enter into the contract

3) injurious-reliance theory: values the carrying out of a promise to avoid injury to the other party

4) Equivalent theory: values the idea that each promise is made in consideration for the other and treated as a formality similar to an oath

5) formalism in contract: values the formal ceremony aspect of making a promise

6) contract and the distribution of risk: a legal promise becomes a wager, never free from uncertainty

What is a Contract?

a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law recognizes a duty in someone

Mutual Assent

• offer and acceptance

• offer = manifested by present intent to be legally bound by certain terms

• acceptance = manifested by promise/performance of certain terms

• requires parties express present commitment to be legally bound to a contract in which the terms are certain

Objective Theory of Assent

when determining assent, look at one’s outward manifestation and not their secret intentions; you look at works and actions, and ask what a reasonable person in that situation would understand those manifestations to mean

Embry v. Hargadine, McKittrick Dry Goods Co.

• Employee demanded clarification on renewal of contract, boss told him “go ahead, you’re all right. Get your men out and don’t let that worry you”. Boss then claimed he didn’t renew the contract; court held what McKittrick said constituted a contract

  • (Embry) Regardless of the parties’ subjective or actual intent, if a reasonable man could infer from their conduct intent to enter into a binding and enforceable contract, said contract is presumed to exist

Empro Manufacturing Co. v. Ball-Co. Manufacturing

• The two companies had shared a letter of intent to purchase assets, when Ball-Co negotiated with others Empro sued; court held that a letter of intent is not an offer/contract

  • Both parties’ objective manifestations of intent to be bound MUST be shown for a binding contract to be formed. Letters of intent, although indicative of parties’ intentions to be bound in the future (preliminary negotiations) generally are NOT binding

Secret Intentions

those not outwardly manifested, kept hidden from promisee; not legally binding

Lucy v. Zehmer

• Zehmer wrote a contract to sell Lucy his farm, then later argued he never actually intended to sell; court argued contract was valid because he never outwardly expressed he wouldn’t sell, and Lucy reasonably  believed he bought the farm

  • The objective outward expression of a party’s intent to be bound in an agreement is all that matters when determining the existence of a valid and enforceable contract, not that party’s subjective mental assent to the agreement

Jest

if an offer is made in jest, it is not binding

Leonard v. Pepsico

• Leonard tried to buy a jet advertised in a Pepsi commercial, which they claimed was a joke; court sided with pepsi saying if an objective, reasonable person could tell it’s a joke, it’s not an offer

• A consumer’s agreement to the terms of an advertisement that was intended to be humorous does NOT create a valid and enforceable contract. An advertisement is an offer if an objective, reasonable person would deem the advertisement as an offer

What is an Offer?

• A manifestation of willingness to enter into a bargain; justifies another person in understanding that his assent to the bargain is invited and will conclude it

• offers are CLEAR, DEFINITE, EXPLICIT, and LEAVE NOTHING OPEN FOR NEGOTIATION

• offers form contracts

• offers create the power of acceptance in the offeree; if there’s no offer, there can be no acceptance

Nebraska Seed Co. v. Harsh

• Seed Corp. argued it didn’t agree to sell millet to the farmer, but merely proposed the amount he had and cost he’d want; court argued it’s not a contract used since the language used is general as in an advertisement

• Invitations to Bargain: an invitation to make an offer is merely an invitation to bargain, NOT an offer that can be accepted

  • Acceptance of a proposal to begin bargaining is NOT a contract, even if the proposal was sent to specific persons, rather than to the general public

Letkowitz v. Great Minneapolis Surplus Store Inc.

• Plaintiff answered a newspaper ad to buy a fur coat and followed the terms advertised but defendant refused to sell arguing it was an offer generally to the public which could be withdrawn without notice; court sided with Plaintiff saying the offer was clear, definite, and explicit, constituting a contract

• Advertisements: an advertisement constitutes a binding offer if it is clear, definite, explicit, and leaves nothing open for negotiation

  •  Once an offer is made, the offeror can unilaterally modify the terms of the offer before acceptance. However, after acceptance, the offeror may NOT impose additional or arbitrary conditions on the offer

Four Ways to Accept an Offer

1) acceptance by promise (bilateral contract)

2) acceptance by mail

3) acceptance by performance (unilateral contract)

4) acceptance by silence

Acceptance by Promise

• bilateral contract: agreements that result from acceptance by promise

Ragland v. IEC

• Ragland wrote “No Refused” in her employment contract arbitration agreement, then was sued when she tried to sue her company; court held there was no arbitration agreement because the employment application requiring the signature wasn’t a contract

  • Rejection of a term does not constitute a contract

Acceptance by Mail

mailbox rule: the minute you deposit a mode of acceptance in a mailbox (or hit send on an email/text), acceptance is effective upon dispatch

• sometimes you must notify the offeror when the acceptance is in the mail

Acceptance by Performance

• unilateral contract: contracts resulting from acceptance by performance

  • if performance is the acceptance, the offeree does NOT need to notify the offeror of their performance

White v. Corlies & Tifft

• Defendants want their offices refurbished by builder, plaintiff, and request an estimate. He leaves an estimate, defendants make a change, plaintiff signs it and returns it to defendant, then defendants write a letter saying “upon agreement…you may begin at once”. He begins working and bought lumber, they rescind and he sues; courts say he didn’t respond to agree thus no contract, and his lumber wasn’t performance because he’s a carpenter and could use lumber for anything

• To form a binding contract, acceptance by performance must be sufficient to manifest or communicate the acceptance to the offeror. If the start of performance cannot be distinguished from other work unrelated to the contract, then it is insufficient to constitute acceptance of the offer, and no binding contract is formed

  • Acceptance does not have to be actually received by the offeror to create a binding contract, but the acts constituting acceptance have to be sufficient that the offeror would understand them as acceptance of the offer

    • Preparatory steps, such as the purchase of materials or preparation of those materials, do NOT clearly communicate to the offeror that performance has begun

Carlil v. Carbolic Smoke Ball Co.

• Defendants promised in newspaper if their product didn’t work they’d pay customers and even made a deposit to show sincerity, a customer proved this and they refused to pay saying it wasn’t a contract since it was made to everyone; court held the ad was a promise and it was binding given the deposit and language in ad

  • A general advertisement of an award constitutes an offer that is capable of being accepted and binds the offeror in a valid contract, provided at least contemporaneous notice and some consideration are present

Petterson v. Pattberg

• Defendant had lean on plaintiff’s mortgage, ∆ offers a discount on mortgage in cash before EO May. π goes to pay mortgage and says he’s there to pay, and ∆ says he’s already sold it, π sues for breach of contract; court hold there was no breach since before π handed ∆ $, he informed him of sale thus creating notice and withdrawing offer before acceptance

  • An offer to enter into a unilateral contract may be withdrawn before the act requested to be done has been performed

Acceptance by Silence

silence can take the form of acceptance if it’s a reasonable assumption

Hobbs v. Massasoit Whip Co. (eelskins)

• ∆ had sent eelskins to π 4-5 times of a certain length. They sent them again, who held them for months and then destroyed them without payment; in the past there was silent acceptance and payment; court ruled they accepted by silence due to past precedent

  • Silence can be taken as acceptance of an offer if the offering party makes a reasonable assumption that the offer is accepted. “conduct which looks like acceptance is acceptance”

Nguyen v. Barnes & Noble Inc.

• BN liquidated inventory of touchpads on website at a discount, π purchased one and received an email saying order couldn’t be fulfilled, he sues for breach, BN says he can’t sue because he has to go to arbitration which he agreed to when he bought TP in Terms of Use on Website; court held there wasn’t reasonable notice of Terms of Use, thus π didn’t assent to arbitration provision

• Whether a reasonably prudent website user has constructive notice of a browse-wrap agreement depends on the conspicuousness and placement of a Terms of Use hyperlink, other notices of the TOU given to users, and the website’s general design

  • Clickwrap Agreements

    • Must click “I Agree” box after being presented with a list of terms and conditions

    • Constructive assent is frequently present in these

  • Browsewrap Agreements

    • Accessed via. hyperlink on a webpage that directs a user to the Terms of Use

      • No affirmative action is required by the website user to agree to the terms of use

Revocation

an offer to make a contract can be revoked by words or conduct inconsistent with the terms of the offer at any time before the offer is accepted, but intent to revoke must be communicated to the offeree

Option Contract

when an offer invites acceptance by performance, an option contract is created when the offeree begins the performance. this gives the offeree a chance to render full performance, and limits the offeror’s power to revoke

Dickinson v. Dodds

• Dickinson offer to sell a property to Dodds with a deadline, Dodds heard he was selling to someone else, so he rushed to meet Dickinson to accept before the deadline, but he said it was too late; court held offer was not valid after revocation

• An offer may be revoked by the offeror without a statement of revocation communicated to the offeree if there hasn’t meeting of the minds and the offeree is aware of conduct by the offeror demonstrating intent to revoke the offer

  • To constitute a contract, it must appear that two minds were at one, at the same moment of time, that is, that there was an offer constituting up to the time of the acceptance

Bjorkman v. Arctic Cat

• Bjorkman was offered a change in his contract which he asked for negotiation on; later, he tried to get the same agreement and was told it was revoked; court sided with Arctic Cat saying they changed the terms and thus can revoke the offer

  • Terms of Revocation: Intent to revoke needs to be known to the offeree. Any words or conduct inconsistent with the terms of the offer is revocation

Counteroffers

offers to change the terms of the initial offer; they are made by the offeree to the offeror, and they revoke the initial offer made by the offeror

Mirror Image Rule

an offer of a bargain by one person to another imposes no obligation upon the offeror, unless it is accepted by the offeree according to the terms on which the offer was made. any changes from those terms invalidates the offer, unless the same is agreed to by the party who made it

NOT UCC

Ardente v. Horan

• In the midst of a purchase of a house, potential buyer said there was a concern that certain furniture should be included with the house, seller refused to sell and potential buyer sued for breach of contract; court held there was no breach of contract since the acceptance was conditional which rejected the seller’s offer

  • A valid acceptance that forms a valid contract must be definite and unequivocal and must NOT impose additional conditions or limitations on the offer, unless such conditional language is clearly independent of the actual acceptance

Rios v. State of Maryland

• Rios charged with assault entered plea negotiations, lawyer asked a question about a different plea, and then the prosecution refused to uphold the original plea deal; the court held the lawyer’s question wasn’t a counter-offer and since he communicated acceptance before revocation, the plea was binding

  • A Simple Question is not a counter-offer: an unconditional question isn’t a counter-offer, and acceptance of an offer constitutes a contract that cannot be revoked

Four Scenarios for Discerning the Terms of an Agreement

1) the term is there

2) the term is not there

3) there are conflicting terms

4) I never saw the terms

“the term is there”

• interpreting the meaning of the words the parties used

  • begin with express terms —> how parties performed within the contract itself (course of performance) —> did the parties have past dealings? if so, how were those carried out? (course of dealing) —> what do people in the trade usually mean by this term (usage of trade)

Ambiguous Terms

• more than one meaning, the problem is misunderstanding; which meaning of the word applies?

Raffles v. Wichelhaus (Peerless)

• There was an agreement for π to send ∆ cotton on a ship called “Peerless”. ∆ refuses to accept the cotton when it arrived on Peerless from December, not Peerless from October; the court sided with ∆ because parties disagreed about the meaning of “Peerless,” meaning there was no meeting of the mind

• If you can discern the parties’ subjective intentions, those intentions will govern (assuming parties on the same page)

  • If no subjective meeting of the minds, either party is entitled to rely on the reasonable meaning of the term

    • However, when there is BOTH (1) no subjective agreement, and (2) no unambiguous reasonable meaning, the agreement will fail

Oswald v. Allen (swiss coin)

• Π was buying coins from ∆. Π thought he was buying all Swiss coins, but ∆ thought he was buying her Swiss Coin Collection; court finds there was no contract because they both disagreed about the item for sale; no mutual assent for a core aspect of the contract

• When any of the terms used to express an agreement is ambivalent, and parties understand it in different ways, there cannot be a contract UNLESS one of them should have been aware of the other’s understanding

  • If the terms of the agreement are ambiguous and the parties each have a different understanding of the agreement, there is no contract UNLESS one party knew the other’s understanding

Frigaliment Importing Co. v. BNS International Sales Corp. (chicken)

• Two entities disagreed about the types of chickens sold; one thought they meant any chicken and one thought they meant young chicken. What is chicken? The court holds chicken means any chicken since it wasn’t defined at young chicken in the contract

•  If the parties to a contract subjectively, but in good faith, construe an ambiguous term differently, courts may look to external factors to determine proper interpretation of the term

  • To consider the interpretation of the word, courts FIRST begin with the plain language of the term, then negotiations between parties, then trade usage, other contract provisions, market factors, and course of dealing between parties

• With respect to trade usage, if one party is not a member of the trade, the other must show:

  • (1) Actual knowledge; or

    • (2) That the usage is so pervasive that the party’s acceptance of it may be presumed

Vague Terms

words with general, broad, or open-ended meanings; must determine whether a term was meant to be applied beyond its core meaning, and to what extent

• a contract will NOT be enforced when the terms of the contract at issue are vague

Robinson v. Liberty Mutual Life Insurance Co.

• After an infestation of spiders, π sue insurance saying they should cover it. Policy excludes damage by insects or vermin. Π argues spiders are not insects or vermin and should be covered. Court holds spiders are vermin and insects, complaint is dismissed

  • Law uses ordinary meaning for terms, not scientific/technical meaning

    In contracts, words used are taken by their ordinary meaning, not their specific scientific or technical meaning

“The term is not there”

• gap-filling

• two types: default rules and immutable rules

• implied-in-fact and implied-in-law agreements/terms

Default Rules

rules courts fill in by default unless parties expressed otherwise; legal rules parties can avoid or vary by means of an express clause

Immutable Rules

rules that may not be varied by consent and will override any express clause to the contrary (ex. good faith and fair dealing)

Implied-in-Fact

terms that parties actually, albeit implicitly, have agreed to

Implied-in-Law

terms thought to be imposed on parties without their consent (court-supplied terms)

Requirements Contract

the quantity term is going to be determined by the requirement needs of the buyer

• (Radiator) Enforceable even if market changes make it unexpectedly advantageous for one party

• (Radiator) However, under good faith and fair dealing, the requirements must be reasonable in comparison to an estimate or past dealings

Output Contract

the quantity term is going to be determined by the seller’s output

Sun Printing & Publishing v. Remington Paper

• Agreement to sell a total of 16,000 tons of paper, disagreement about set price after price for the first four months ran out.

  Gap: price of paper?

  Court held contract was unenforceable because not all essential terms were set

• To constitute a binding contract, the terms of each element of the contract must be sufficiently specific

  • An agreement to agree where the key, central terms of the contract are not clear and not actually agreed upon is NOT sufficient to bind a party

New York Central Iron Works v. US Radiator Co.

• Π ordered an unusually large number of goods from  ∆ who was bound to fill it but refused due to the amount.

  Gap: How much can π order? Quantity gap.

  Court held the contract is enforceable and ∆ must fulfill the order; gap filling with good faith and fair dealing

• Requirements Contracts

  • Enforceable even if market changes make it unexpectedly advantageous for one party

  • However, under good faith and fair dealing, the requirements must be reasonable in comparison to an estimate or past dealings

Eastern Air Lines Inc. v. Gulf Oil Corp.

• Requirements Contract

  ∆ always sold airline fuel to π, then demanded a price increase or would shut off oil. Contract bound them to each other.

  Gap: are both parties bound to each other?

  Court held the contract is enforceable

• A contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party – must be in good faith

  • Quantity of goods isn’t indefinite since it can be estimated by looking at the objective quantity of goods required to operate the purchaser’s business

    • As long as the demanded quantity is not unreasonably disproportionate to any standard estimate or comparable prior demands

Wood v. Lucy, Lady Duff-Gordon

• Exclusive dealings contract for Wood to promote and sell Lady’s clothes. Lady sells her own clothes, Wood sues. 

  Gap: contract lacks mutuality of obligation

  Court: Even if contract doesn’t say so, there’s an implied effort for agent to use best efforts and act reasonably, thus contract is valid

• Exclusive dealing → contract where one party agrees to exclusively deal with the other

  • Implied Promises Gap-Fill Indefiniteness: implied promises can fill in mutuality of obligations, making contracts with gaps valid

“There are conflicting terms”

identifying which terms the parties adopted

Battle of the Forms

when a buyer and seller exchange business documents that contain conflicting or additional terms; UCC §2-207

When it is Battle of the Forms and you should apply UCC §2-207

• contract for the sale of goods between two merchants

• Key issue is whether the terms materially later the contract

• 1) The parties agreed to be in contract for the sale of goods

• 2) Never adopted one particular writing as their final agreement

  • 3) writings exchanged between the two do not agree regarding terms

Material Alteration

an alteration is material if consent to it cannot be assumed

Step Saver Data Systems Inc. v. Wyse Technology

• Step saver sold defective technology and sues TSL for breach of contract, which they refuse saying they stated all their terms in the box-top agreement.

  At what point in negotiations do we see the licensing agreement?

  The new terms were not part of the licensing agreement since the contract was sufficiently definite without the box-top agreement and there was no assent by π

• Under UCC §2-207, a written form’s new terms do NOT materially alter an existing contract if the sending party does not clearly express that it is unwilling to proceed without the new terms

  • When a disclaimer is not expressed until after the contact is formed between merchants, if the disclaimers materially alter the parties’ agreement, and are NOT incorporated into the agreement

Union Carbide Corp. v. Oscar Mayer Foods Corp.

• Π cut corners to reduce sales taxes, and deleted them from ∆ invoice for sausage casing. Later the IRS told π they owed a lot of $, so they paid and sued ∆ to pay their taxes they never charged them for. Term on invoice saying ∆ responsible for taxes. Court held this term was a material alteration since it would make ∆ liable for an unreasonable amount

• Additional terms are only those to which the offeror would be unlikely to object, because they fill out the contract in an expectable fashion and hence do NOT materially alter it – Material Alterations cause unreasonable surprise and have consequences

  • Terms added to the contract through acceptance that materially alters the contract will NOT become part of the contract if those terms would cause unreasonable surprise, unless consent to the terms can be inferred

“I never saw the term”

the term was part of a complicated form contract

Form Contracts

• pre-written, standardized legal agreement where one party sets all the terms and the other party must accept it on a “take-it-or-leave-it” basis

  • creates issues of assent

How to determine Assent in Form Contracts?

decide if the contract is fundamentally fair — if it is fundamentally fair, then there is assent and it is enforceable

Carnival Cruise Lines v. Shute

• Shutes purchase tickets for a cruise, which contain contract conditions stating any litigation must occur in Florida. Shutes get injured and try to sue in Washington.

  Is the clause reasonable?

  Court held it is fair and the clause can be used

  •  Fundamental fairness is the standard that a judge will use to determine whether the forum-selection clause of the form contract can be enforced. Forum-selection clauses are form contacts, even though not negotiated, are generally enforceable as long as they are reasonable

Rakoff Theories

• visible terms

  • invisible terms

Visible Terms

• ordinary terms you’d expect to be a part of a particular contract

• what a reasonable consumer would reasonably expect to be in a contract of this type

  • automatically assumes assent

Invisible Terms

• terms you wouldn’t expect to be part of a particular contract

• usually won’t be enforced without an affirmative justification

• “fine print”

  • you need something more to show affirmative assent; similar to secret intentions (not allowed!)

Statute of Frauds

requires some contracts be formalized in writing; if not in writing then the contract is unenforceable

• (some courts allow recovery for expenses spent in reliance on alleged contract)

What Contracts fall under Statute of Frauds

• contract of an executor or administrator to answer for a duty of his decedent

• contract made in consideration of marriage

• contract for the sale of land

• contract not to be performed within one year of its making

• contract for the sale of goods of $500+

  • contract for personal property of $5,000+

MYLEGS

SOF

• Marriage

• more than one Year

• Land sales

• Executor agreement

• Goods contracts over $500

  • Surety (agreement to pay another’s debt)

exceptions to SOF

• evidence of partial or complete performance by one party, particularly if there is a benefit to the other party

• injurious reliance

• specially manufactured goods

• etc.

Boone v. Coe

• Coe agreed to lease his farm to Boone for 12 mo upon arrival. After 2mo travel, Boone arrived and was refused access. Does SOF bar recovery for time and expenses lost? The court held that yes, it bars recovery since a party can’t recover for damages sustained in reliance on a contract that’s unenforceable under SOF where ∆ hasn’t been unjustly enriched.

  • Under a contract for personal services within the SOF, an action can be maintained on a quantum meruit if the party not seeking enforcement received some benefits from the acts or part performance – then the law therefore implies a promise to pay

CR Klewin Inc. v. Flagship Properties Inc.

• ∆ hired π as manager for a construction project. Later, he was dissatisfied and hired a replacement. Π sued for breach of contract. Does SOF one-year-provision make an oral contract unenforceable when it fails to specify a time for performance, but the nature of the work makes it improbable the performance could be completed within a year? Court held no, it is only unenforceable when it can 0% be completed within a year, it must be stated in express terms

  • A contract does NOT fall within the SOF’s one year provision UNLESS, by the specific terms of the contract, it is impossible for performance to be completed within one year. The mere lack of a term defining when the performance is to be completed will NOT bring the contract within SOF

Riley v. Capital Airlines

• Π had a 5-year contract to produce and supply methanol for ∆, who cancelled about 2 years in. π sued for breach of contract. Does SOF bar the enforcement of an oral contract beyond one-year even if the contract is for goods specially manufactured for the buyer? Court held yes, it’s unenforceable, but granted some damages to π for expenses of equipment

• A contract will not be removed from under the SOF when the seller specially manufactures goods at issue for the buyer and those goods are not suitable to be sold to others in the normal course of the seller’s business – however, will be taken into account when considering damages

  • A party may recover money reasonably expended in anticipation of performance of a contract even though the contract is voided by the statute of frauds

Parol Evidence Rule

existence of writing is considered privileged and given priority over oral communications when interpreting the meaning of assent

• bars/limits the use of prior or contemporaneous oral or written agreements, to change or contradict a final written contract

• extrinsic evidence rule

  • in general, parol contemporaneous evidence is inadmissible to contract to vary the terms of a valid written agreement

How to Spot Parol Evidence Rule?

• Is there something that looks like a final written agreement?

• Is one party trying to introduce evidence of a prior or contemporaneous oral or written agreement?

  • If yes, then does smell like a parol evidence rule issue

Approaches to Analyzing PER issues and deciding ig a contract is in it’s final written form

1) Traditional “Four Corners”

2) Modern

3) UCC

PER Traditional “Four Corners” approach

• looks at language of the written contract ONLY to determine if it was intended to be the final written agreement

• prohibits extrinsic evidence in determining whether writing is a final embodiment

  • if a written contract on its face looks complete, then we assume it was meant to be the final expression and parties intended to introduce every material term

• Thompson v. Libbey

PER Modern Approach

• allows extrinsic evidence in determining whether writing is a final expression

• Masterson v. Sine

PER UCC Approach

• framework where courts use course of trade and performance to be brought in to explain or supplement an agreement

Thompson v. Libbey

• Written contract for the purchase and sale of logs. ∆ wants to bring in prior evidence that there was also a warranty as to the quality of the logs. Court held if there was a final written agreement, that will be honored above any prior oral agreements

  • If the writing is ambiguous, parol evidence rule applies, and extrinsic evidence is not allowed

Masterson v. Sine

• Written agreement to convey ranch, and oral agreement to keep it in the family. Did they intend the written agreement to be the final agreement? Court held the evidence outside the written agreement should have been allowed to be considered

• Even when it is unclear whether a written contract is intended by the parties to be complete, evidence of a separate oral agreement may be admissible to prove the terms if it’s an agreement that that would naturally be made as a separate agreement given the circumstances when drafting the written contract

• Generally, evidence of oral collateral agreements should always be admitted unless it is likely to mislead the trier of fact

  • First, the court looks at the contract itself, then it looks to the surrounding facts and circumstances to determine whether the agreement was meant to be the final expression of the parties

Carter Baron Drilling v. Badger Oil Corp.

• Π contracted ∆ to furnish their needs, ∆ worked for company and resigned, so π charged company. Then, π charged ∆. Court looked at past payments and said this is admissible to show extrinsic evidence of contract to charge company, not ∆

• PER UCC §2-202 Approach: Usage of trade, course of performance, or course of dealing can be introduced to explain or supplement an agreement => don’t have the same concern of fraud, mistake, or faulty memory…this evidence is objective

Pacific Gas and Electric Co. v. GW Thomas Drayage & Rigging Co.

• ∆ agreed to furnish needs for π and agreed to indemnity. An accident occurred and π brought action for damages. Wants to include extrinsic evidence to show the clause didn’t cover that. Court held extrinsic evidence can be used

  • PER Modern Approach: Rational interpretation of parol evidence requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties, Such evidence includes testimony as to the “circumstances surrounding the making of the agreement…including the object, nature and subject matter of the writing” so that the court can place itself in the same situation in which the parties found themselves at the time of contracting

Trident Center v. Connecticut General Life Insurance Co.

• ∆ got a loan from π, and tried to refinance to get a better rate but π refused. Π wants to used extrinsic evidence. Courts allow this

  • PER Modern Approach: Under Pacific Gas, if one party is willing to claim the parties intended one thing but the agreement provides for another, the court must consider extrinsic evidence of possible ambiguity

Consideration

a bargained-for exchange where each party must be bound to do something that wasn’t legally obligated of them to do or refrain from doing something lawful

What counts as consideration for a promise?

1. An act other than a promise; or

2. A forbearance; or

3. The creation, modification, or destruction of a legal relation; or

4. A return promise bargained for and given in exchange for the promise

What is needed for there to be consideration (and thus enforceable contract)

• a benefit to the promisor (one party benefits); or

  • a detriment to the promisee (one party takes on a disadvantage)

What factors must exist to constitute as a “bargained-for exchange”?

1. The promisor made the promise (manifested an intention) to induce the return promise or performance

2. The fact that a promise does not in itself induce a performance or return promise does NOT prevent the performance or return promise from being consideration for the promise

The Bargain Theory of Consideration

• (with some exceptions) to be n enforceable contract, a promise must be supported by consideration; a promise is supported by consideration if it is bargained for

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

• any informal commitment that is not bargained for it unenforceable

Theory of Enforceability

to find a commitment is legally enforceable on the grounds that it is supported by consideration, one must determine that it has been bargained for

Gratuitous Promises

only effective upon actual delivery of the thing that was promised

Bargains

• must include

1) the promisor made the promise (manifested an intention) to induce the return promise or performance, and

2) the return promise or performance was (manifested and) made to secure the initial promise

Johnson v. Otterbein University

• Johnson promised to pay money to a University then took it back. She argued there was no consideration. The court decided there was indeed no consideration, because there was no advantage to Johnson, and the contract is unenforceable

  • An executory contract (a contract where one or both parties have not yet fully performed) is without consideration, and a promise to pay money as a gift may be revoked at any time before payment

Hamer v. Sidway

• An uncle promises his nephew if he refrains from drinking/swearing/smoking/gambling until age 21, he’ll give him $5k. Nephew agrees, and fulfills his promise. Uncle says he’ll hold his $ with interest which nephew agrees to. Uncle dies, and the executor refuses to give nephew $. Nephew sues for breach of contract. Court hold executor needs to pay nephew, because the nephew was harmed by refraining from a legal right, giving consideration. He was forbearing his legal right in consideration for the promise

  • Consideration means not so much that one party is profiting as that the other party abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the firs

Kirksey v. Kirksey

• After her husband died, brother-in-law (BIL) told her and her kids to come live with him and he’d give her a place to raise her family. Widow moved, and she lived on BIL property for 2 years before he asked her to leave. She sued for breach of contract. Court held the contract isn’t enforceable because the promise was a gratuity, and nothing was bargained for

• A mere gratuitous promise (gift) without any other consideration is NOT enforceable as a binding contract

  • A promise to provide free land for a residence that is fulfilled for a finite amount of time and then revoked is gratuitous and thus unenforceable

Past Consideration

• generally not enforceable

Moore v. Elmer

• A psychic tells ∆ when he’ll die, and he says if he does die before the date, he will pay her mortgage. He does die. Π wants to enforce this as a written promise. She sues for. The court views it as a bet without consideration, and there’s no suggestion the promise was in payment for the readings. Elmer did not seek anything from Moore

• Past consideration is NOT sufficient for enforcement of a contract UNLESS the parties agreed prior to performing that compensation therefore would be provided at a later time

Passante v. McWilliam

• A company needed a loan to make hologramed baseball cards, their lawyer π provided it. In gratitude, they gave him 3% of stock. Things changed with a new investor and this was taken away. Π sued for the stock. The court held there was no consideration since the loan was given without the promise of the stock, and a past contract cannot constitute consideration

  • Consideration for a past contract is not enforceable as consideration for a new contract/gift

    If a contract with consideration was previously made, you cannot claim that consideration applies to a future promise

Moral Consideration

• moral obligation alone is not enough to create a preexisting obligation to do what you promised; it must be accompanied by a preexisting legal duty or material benefit to the promisor