BMGT380 Exam III

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The Holt Case (Promissory Estoppel)

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The Holt Case (Promissory Estoppel)

  • Plaintiff works for Home Depot and the internal complaint procedure as outlined in the employee handbook

  • If used, Home Depot would not fire you

  • There was a reliance on the promise made in the handbook to not be fired for making a complaint

  • The jury ruled in favor of Holt

  • Most courts state that employee handbooks don't create a contract

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The Meram Case (Objective Approach)

  • Insurance sales presentation that is open to the public by a company worth a billion dollars

  • The presentation was put on by McDonald who has a billion-dollar insurance company

  • Says "I will pay you a million dollars if you put your business card in the hat and you sit through the presentation and your card is chosen at the end"

  • Plaintiff Meram's business card was chosen and he is expecting a million dollars

  • Gives him 100 dollars and then a dollar a year

  • Meram sues for a breach of contract

  • Alliance Inc and McDonald move for a motion to dismiss

  • Meram wins the motion to dismiss because the court used objective intent to analyze the case

  • The reasonable person could actually think they were getting a million dollars because Alliance was such a large company (objective approach)

  • McDonald secretly intended not to actually play

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The Armstrong Case (Specificity of an Offer)

  • 2 guys working for a plant company are told if they leave the company will outsource 'as much work as they can handle' to them

  • Based on that statement they leave and start their own company

  • They end up getting little work and sue for breach of contract

  • The court sided with their former employers because the contract was very vague and therefore it cannot be interpreted as intent (specificity of an offer)

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The Leonard Case (Ads are not Offers)

  • Pepsi had a commercial about points and if you got enough points you can win prizes

  • One of the prizes was a 23 million jet

  • Leonard sees the ad and wants to get the jet

  • You could buy points for 10 cents each rather than having to buy actual drinks

  • Pepsi did not actually give Leonard the jet and he sues them

  • Pepsi won the case because no reasonable person would expect to get the jet

  • The ad was not specific about how many jets there was and had no time limit

  • The jet was not even in the catalog of the possible prizes (ads are not offers)

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The Okosa Case (Mailbox Rule)

  • Okasa(plaintiff) has an auto insurance policy and had quarterly premium payments

  • Was sent a letter by insurance that the policy is going to be canceled by March 16 unless payment is received

  • The day before that deadline, she mails a check by certified mail and gets a receipt

  • On March 16, she is in an accident with an uninsured driver

  • Uninsured driver, then you make a claim on your own policy

  • Insurance denied the claim on the basis that they didn't receive her payment by the 16th

  • Sues the insurance for breach of contract and the insurance company wins summary judgment

  • Appeals the case and wins the appeal

  • She won because, under the mailbox rule, she accepted their offer when she sent her acceptance(check) the day before the deadline

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The McGurn Case (Silence as Acceptance)

  • McGurn is negotiating the terms of a job with a company, Bell, and he wants a 24-month termination clause

  • This means if he is fired within the first 24 months then he is owed severance pay

  • They make three separate employment offers and none of them are with the 24-month termination clause

  • The final one has a 12-month termination clause

  • He crosses out 12 months and writes 24 months, signs it, and sends it back to Bell

  • Bell never responds and McGurn starts working for 13 months and is fired

  • He demands severance and Bell refuses

  • The court decided that the silence is acceptance because they accepted the benefit of his 13-month employment

  • In this case, silence is acceptance and lets the jury decide

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The Heye Case (Illusory Promise)

  • Plaintiff Heyes was hired by a golf company and was given an employee handbook and it stated that any conflict with the company must go to the arbitration clause

  • She was fired and filed lawsuits against the company under sex discrimination

  • At first, the court affirmed the arbitration

  • She made a motion for reconsideration for the court to reconsider and change their mind and she wins

  • The company takes the appeal and the court said that the arbitration agreement was an illusory promise

  • Under the handbook, the company said that they reserve the right to change any part of the handbook at any time for any reason

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The Skebba Case (Promissory Estoppel)

  • M.W Cash Co. hired Skebba and became VP of sales

  • They were having financial difficulties and Skebba was considering taking another offer at a better job

  • Skebba wanted 3 conditions to be met in order to stay at the company

  • One of which was to pay Skebba $250,000

  • After 6 years the company was sold they did not pay Skebba the money and they did not keep the promise

  • The court stated that there was no contract but there was promissory estoppel

  • Skebba appealed and won and he was rewarded $250,000 in damages

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The Jordan Case (Fraud)

  • Involving the basketball player, Michael Jordan

  • Had a clean public image and got many endorsement deals from his image

  • It was exposed that he was cheating on his wife with a singer and gets her pregnant

  • He promised to pay her $5 million when he retires if she kept quiet

  • He retires and he refuses to pay her (not his kid)

  • She demands he pay under a breach of contract and he sues her for defrauding him because he claims she knowing entered this contract when she knew the baby was not his

  • He ultimately wins because the contract was not enforceable because she did indeed defrauded him because she was sleeping with multiple other men at the same time when she got pregnant

  • Fairly likely that there was a good chance it was not Jordan's baby even without a paternity test

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The Nelson Case (Mutual Mistake & Unconscionability)

  • Nelson dies leaving an estate which includes artwork

  • Administrators of the estate hires someone to do an appraisal of the artwork

  • When hired she says I can do the appraisal but I would not be able to recognize fine art (valuable art) but they hire her anyway

  • She says she does not see any fine art in the estate

  • There is an estate sale and a guy buys 2 paintings for 60 dollars and he sells them at auction for a million dollars

  • The paintings were done by a famous artist in the 1800s

  • The estate tries to get out of the sales contract under which they sold the two paintings for 60 under the theory of mistake

  • Estate loses the case because they knew they did not know the true state of affairs because the appraiser told them she wouldn't recognize fine art

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The Straub Case (Mutual Mistake)

  • Male-female couple in a long-term relationship

  • She wants a kid but her partner does not want a kid because they are expensive

  • She convinces him to enter into a contract where he will impregnate her but he will not be held financially responsible

  • She gets pregnant and has the kid

  • She has a change of heart and wants him to pay for the kid

  • She sues him and the contract is unenforceable because it violated the public policy of Indiana law

  • State law states that biological parents must pay child support if they are financially able to

  • He loses and has to pay for the kid

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The McCume Case (Exculpatory Clause)

  • The plaintiff went to play paintball and signed a waiver stating that the business isn't responsible for any negligence

  • The staff poorly put a mask on her (negligently) that resulted in her becoming permanently blind in the eye that was shot by a paintball

  • She sues the business.

  • Court: The court rules in the business's favor. The waiver is valid because this issue was indeed one of negligence.

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Law of Contracts

deals with the enforcement of promises

  • only some are enforceable

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Freedom of Contract

courts should not interfere with contracts because contracts are the product of free will of the people who enter into them

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20th Century of Contracts

dramatic increase of regulation by the government and courts of private contracts

  • employment contracts

  • insurance contracts

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General Rule of Contracts

contracts need to be oral or written to be enforceable

  • does not need to be written but is it easier to enforce if written

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4 Basic Elements of a Contract

  1. voluntary agreement - offer and acceptance of the offer

  2. consideration - something of legal value that every party in the contract gives to the other parties in the contract

  3. capacity - adult and without mental impairment

  4. objective and performance of the contract must be legal - illegal contracts cannot be enforced

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4 Ways to Classify Contracts

  1. bilateral vs unilateral

  2. valid, unenforceable, voidable, and void

  3. expressed vs implied

  4. executed vs executory

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Bilateral Contracts

both parties make a promise

  • almost all contracts are bilateral

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Unilateral Contracts

one party makes a promise to the other

  • frequent flyer program (airline promises you point rewards but you don't promise anything)

  • blackout period: limited period

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Valid Contracts

meets all 4 of the basic elements to a contract which makes it enforceable

  • employee contract

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Unenforceable Contracts

meets all 4 basic elements to a contract but is not enforceable for some other reason

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Statute of Frauds

requires some contracts to be in writing to be enforceable

  • buying a house: if not in writing the contract is not enforceable

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Statute of Limitations Expired

the period in which you can sue has [assed

  • for breach of contracts the statute is approx 3-6 years

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Voidable Contracts

agreement in which one or more parties are entitled to get out the of the contract once they are in it

  • minors, mentally impaired, and victims of fraud

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Void Contracts

illegal contracts

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Expressed Contracts

terms of contracts are explicitly stated either orally or in writing

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Implied Contracts

terms of contracts are not explicitly stated, but we can figure out the terms by looking at the circumstances of the transaction

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Executed Contracts

when all of the parties have fully performed their contractual duties

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Executory Contracts

when all parties have not fully performed their duties

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2 Main Sources of Contract Laws

  1. Common law

  2. Uniform Commercial Code (UCC)

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Common Law

laws that judges create

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UCC Article 2

Applies to contracts for the sale of goods

  • goods are tangible, movable, and are personal property

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Hybrid Contracts

deals with a combination of goods and services

  • source depends on the dollar value of good and dollar value of service

  • If good > service dollar value, → UCC

  • If good < service dollar value, → Common Law

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Non-Contract Obligations

a situation where there is some kind of arrangement (not contract) that is still enforceable by the court

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Unjust Enrichment

one benefiting unfairly at another's expense

  • A provides a benefit to B, who knowingly accepts the benefit, unjust to allow B to accept the benefit without paying for it, therefore the court will require B to pay A

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Promissory Estoppel

An equitable doctrine that protects those who foreseeably and reasonably rely on the promises of others by enforcing such promises when enforcement is necessary to avoid injustice, even though one or more of the elements normally required for an enforceable agreement is absent

  • knowingly accept

  • promisor and promisee

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Promissory Estoppel 3 Requirements

  • all three must be shown

  1. promisor made a promise to the promisee and the promisor should have expected that the promisee would have relied on that promise

  2. Promisee did rely on the promise (actual reliance)

  3. unjust to allow the promisor to break the promise

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the person who makes the offer

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the person to whom the offer is made

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3 Requirements of an Offer

  1. objective indication of intent to enter a contract on the part of the offerer

  2. specificity of the alleged offer

  3. communication of the offer to the offeree

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How to Discern Intent

  • joking does not equal intent

  1. subjective - what did the offerer actually/secretly intend when they said what they said

  2. objective - does not care about what someone thinks but asks what would a reasonable person who heard the offer think/do

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Specificity of the Offer

  • 2 reasons for for this requirement

  1. the less specific the deal the less likely it shows intent

  2. too much vagueness then the court is going to have a tough time figuring out of a breach of contract actually occurred

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4 Terms Courts Can Fill In

  1. price

  2. quantity

  3. delivery/conditions

  4. time for payment

  • exception: if the reason for a missing term is due to parties not agreeing then. the courts will not fill in the terms = no intent

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Communication of the Offer

  • indirect communication does not count (exception if the person is acting as a agent)

  • ads are not offers (the more specific the ads are, the more likely it is to be an offer)

  • ads for rewards are offers

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Terms Included in an Offer

the terms accepted are the ones you had actual or reasonable notice of

  • small writing at the. end does not count

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Termination of Offers

  • if an offeror terminates the offer, it can no longer be accepted

  • 7 ways an offer terminates

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Termination: By the Terms of the Offeror

offeror includes a term in the offer that limits its duration

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Termination: By Lapse of Time

terminates after a reasonable amount of time has occurred which is determined by the judge/jury

  • subject matter can be subjected to rapid fluctuation of value - the offer has a short duration

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Termination: Revocation

an offer can be revoked at any time before acceptance of time and that X amount has not passed even if the offeror says it'll remain open for X amount

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Termination: Rejection

  • 2 types of rejections

  1. expressly - offeree states they refuse

  2. impliedly - make counteroffers

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Termination: Death or Mental Insanity

the offer is terminated if either party dies or goes instance after the offer is given

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Termination: Destruction of Subject Matter

if, just before the offer is accepted, the subject matter is destroyed without either party knowing/being at fault, the offer is terminated

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Termination: Intervening Illegality

an offer terminates if the performance in contracts becomes illegal before the offer is accepted

  • ex: drug becomes illegal before the offer is accepted

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3 Requirements for an Acceptance

  • all three must be met

  1. offeree has to intend to enter into a contract

  2. offeree has to accept the terms proposed by the. offerer

  3. offeree must communicate acceptance to the offer

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Approach Used by Courts to Figure Out Intent

objective approach - what would a reasonable person who heard what the offerer said would think

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The Mirror Image Rule

accept exactly the terms and no new terms

  • new terms or any. alternations are treated as an counteroffer

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Communicate Acceptance Details

  • the offeror is entitled to specify how and when the acceptance can be made or occur

  • could accept in any reasonable manner unless specified

  • if the subject matter of the acceptance is time-constrained then there is a shorter reasonable time

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The Mailbox Rule

acceptances are effective when sent even if never received by the offeror

  • offeror is entitled to modify the mailbox rule and say that the acceptance is only valid when received by the offeror

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Silence as Acceptance

generally, silence by the offeree is not acceptance

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3 Exceptions to Silence as Acceptance

  1. there are prior dealings between the parties and there is a mutual understanding of silence as acceptance

  2. an offer is made and the offeree says if you don't hear from me then take it as an acceptance

  3. offeree is silent, offeror assumes acceptance and acts, offeree accepts benefits from acts then there is acceptance to the contract

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Acceptance When a Writing is Expected

there is a deal even if the terms of the contract are not in writing

  • can sue for breach of contract

  • exception: evidence shows that there was an intention that that there is no deal until in writing

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Who Can Accept the Offer

only the offeree can accept the offer unless there is an agent involved

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the legal value given by everybody who is a party to the contract to everybody else who is a party to the contract

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Adequacy of Consideration

if one party makes a bad deal then it is their own problem

  • exception: if the deal is bad enough the court may refuse to enforce it if there is evidence that the reason the deal is bad is that one party defrauded the other party into entering the contract/lacked capacity

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4 Forms of Consideration

  1. you do something you had no prior obligation to do

  2. your promise to do something you had no prior obligation to do

  3. you refrain from doing what you are entitled to do

  4. you promise to refrain from doing something you are entitled to do

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Not Consideration: Illusory Promises

looks like consideration/promise but isn't actually consideration/promise

  • promise that does not bind or require the individual to do anything or refrain from doing anything therefore is not a contract

  • ex: Heye Case

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Not Consideration: Preexisting Duties

if you already have a duty to do something and the consideration in the contract is that you are going to do that preexisting duty that does not constitute consideration

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Preexisting Public Duty

deals with obeying the law - not consideration

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Contract Modification under UCC

do not need consideration

  • oral modifications do not count

  • 500 dollars+ must be in writing

  • UCC is only with the sale of goods

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Contract Modification under Common Law

you do need new consideration

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Agreement to Settle Debts

  • deals with credit card debt or gen debt

  • can negotiate a reduction in debt payment

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Liquidated Debt

debt where there. is no dispute on how much is owed - unenforceable

  • I'll pay half of what I owe you - not consideration

  • I'll pay half of what I owe 2 weeks early - yes consideration

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Unliquidated Debt

dispute about how much is owed

  • Some of the charges aren't yours and the bank removes those, they cannot come after you for those removed charges later - enforceable

  • Called Accord and Satisfaction

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Composition Agreement

owes a debt to multiple creditors

  • each creditor agrees to accept a small percentage of the total owed - enforceable

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Not Consideration: Past Consideration

  • does not count as a consideration

  • an act or benefit given in the past that was not given in exchange for the promise in question

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Exceptions to the Consideration Requirement

  1. promissory estoppel - subs consideration

  2. promise to pay a debt where the statute of limitations expired

  3. promise to pay a debt you discharged in bankruptcy

  4. charitable gifts

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to terminate the contract as to future transactions or to annual the contract from the beginning

  • only the injured can rescind

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the adoption of affirmance by a person of a prior act that did not bind them and continue to receive benefits from the contract

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Rescind vs. Ratification

if person ratifies then they can no longer rescind

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making the statement but does not know it's false

  • should be allowed out of the contract because the other party made a misrepresentation during negotiations

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Misrepresentation 4 Requirements

  1. there was a false statement of fact

  2. has to have relied on the fact

  3. has to be material/significant

  4. the reliance has to be justified

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making statements but knew it was false

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Fraud 5 Requirements

  1. false statement of fact

  2. has to have relied on the fact

  3. has to be material/significant

  4. the reliance has to be justified

  5. scienter

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person making the statement knew it was false. and the intent was to deceive the other person

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during the negotiations either party are mistaken about some important fact and you either into the contract on the basis of that mistake

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2 Kinds of Mistake: Mutual

both parties are mistaken about the same basic fact

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Prove 3 Things to Leave Mutual Mistake Contract

  1. mistake relates to the basic assumption on which the contract was entered into

  • assumption: identify, existence, quality, and quantify

  1. has to be material

  2. the party adversely affected by the mistake does not bear the risk of the mistake

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2 Kinds of Mistake: Unilateral

only one party is mistaken

  • more difficult for the court to agree to

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Prove 4 Things to Leave Unilateral Mistake Contract

  1. mistake relates to the basic assumption on which the contract was entered into

  2. has to be material

  3. the party adversely affected by the mistake does not bear the risk of the mistake

  4. must prove either A or B A.) the non-mistaken party either caused the mistake or knew of the mistake but did not tell B.) it would be extremely unfair to enforce the contract

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wrongful coercion that induces a person to enter into a modified contract

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2 Kinds of Duress: Physical Compulsion

physically forcing someone to sign a contract

  • void contract

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2 Kinds of Duress: Threat of Physical, Emotional, or Economic Harm

threat to kill dog

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2 Requirements to Leave Contract Under Duress

  1. victim must show there was an improper act or threat

  2. victim must show they had no reasonable alternative but to. give in to the duress

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Undue Influence

  • unfair persuasion

  • ex: rich elderly person who has a evil caretaker and persuades the elderly person to change their will to leave everything to them instead

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Undue Influence Proof

  1. show either a relationship of trust or confidence between the victim and evil person

  2. or show how the evil person had dominance over the victim

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Factors for Unfairness

  • is the victim kept isolated and unable to discuss with family

  • is the result of the change that the distribution of assets is suspicious

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the ability to give voluntary consent to enter into a contract

  • no capacity then there is not an enforceable contract

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3 Categories of People Who May Not Have Capacity

  1. minors

  2. mental illness/impairment

  3. intoxicated people

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The legal avoidance, or setting aside, of a contractual obligation.

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