Contracts - Maggs - Fall 2010 - 3
Contracts - Maggs - Fall 2010 - 3
Contracts - Maggs - Fall 2010 - 3
Introduction
A contract is a promise or a set of promises for the breach of which law gives a
remedy, or the performance of which the law in some way recognizes as a duty
Restatement (Second) of Contracts 1
Basis of Enforcement
a.
1.
Consideration
Consideration as a Basis for Enforcement
General Rule: Consideration for the D's promise may be (1) either a promise or
a performance that was (2) bargained for in exchange for the d's purpose
D's arguments: The D will argue that there is no consideration because these
two elements have not been met.
Arguments for why there is no valid promise or performance:
a. The promise given in exchange is a promise to settle an invalid claim,
and the P did not have a good faith and reasonable belief in the
possible validity of the claim. Cf. Fiege v. Boehm
This
Expansion of Promises
Instead of being expressed in so many words, it could be fairly to
be implied in a promise
Wood v. Lucy, Lady DuffGordon Court of Appeals of New York 1917
Promise of exclusive rights
Lucy () ---------------> Wood ()
<--------------express promise of profits; and implied promise to reasonable
efforts
Facts: Lucy designs a lot of stuff, creator of fashion. She
employed the plaintiff to help her. He was her agent. He was to
have the exclusive right subject to her approval to place
indorsements on the designs of others. He was also to have the
exclusive right to place her own designs on sale or to license
others to market them. In return she was to have of all
profits and revenues derived of the contracts he might make.
This agreement would last a year. The plaintiff says that he
help the contract on his part and that the defendant broke it.
She placed her indorsement without his knowledge and
withheld the profits. He sues her for the damages and she
wants demurrer
Sears approached Lucy to sell her items and she went
ahead and made a deal outside of the contract. Wood said
that she wasnt upholding her end of the bargain
Ruling/Rationale: Appellate decision should be reversed and the
Special Term affirmed
Thought Wood had an implied duty to use his resources
and this was implied in the contract. Was not in favor of
Lucy
The plaintiff had some dutieshis promise to pay the
defendant of the profits and revenues resulting from the
exclusive agency and to render the accounts monthly was
a promise to use reasonable efforts to bring profits and
revenues into existence
Terms that people use to give up their rights
a.
Waivervoluntary relinquishment
b.
Estoppelinvoluntary bar from asserting right
Reliance
Reliance as a Basis for Enforcement
a.
Stage 1 (before late 1800s): not recognized (Kirksey)
1.
He promised to take care of the family and she went with
it, but not considered for consideration
b.
Stage 2 (late 1800s/early 1900s): not recognized explicitly, but
other doctrines or acts stretched to find consideration
1.
Ricketts (equitable estoppel)general doctrine that says if
a person says a statement of fact and another person relies on
it the original person cannot back out
i.
Unorthodox example: In the case the grandfather
gave his granddaughter money to not work. He didnt pay
the rest, but he died and the executer refused to pay under
no consideration, he thought it was a gift.
ii.
The court believes that there was no consideration,
but it was enforceable on the theory of equitable estoppel
i.
Executor could not raise a question about
consideration
2.
Allegheny (gift v. bargain)facts of the cases were
stretched
i.
Mary Yates Johnston pledged a large sum of money
to her alma mater. She didnt give all the money up front.
Some of her family members went into hard times and
gave them some of the money instead. The college wasnt
too keen and sued
ii.
Argued that it was a gift and there was no
consideration, but the court conclude that there was
consideration because she gave some money to the
college. So the consideration was enforceable
c.
Stage 3 (mid-1900s): recognized explicitly under new
promissory estoppel doctrine Rest. 90, Feinberg
1.
Feinberg had adhere to all of the elements of promissory
estoppel
2.
Promise was based on the idea of reliance and could be
upheld
Elements of Promissory Estoppel (Rest. 90)
Promise
Action/forbearance by promise
Induced by (i.e. taken in reliance on) the promise
Reasonably expected by promisor
Enforcement necessary to prevent injustice
Civil Liability
Types of Civil Liability
Contractpromises
Tortaction to another
Restitution [Syl. App. 3]alternative when there is no contract;
secondary remedy
Liability for unjust enrichment 1
name quiet. The newspaper published his name and he lost his
job and creditability
What the court says
The court didnt see it as terms of the bargain or
consideration
Court rejected the first amendment argument (its an
agreement)
The court said that under promissory estoppel there should
have been enforcement
Other Names for Claims for Restitutionjust to keep everything
straight
Unjust enrichment
Quasi-contract
Contract implied in law
Constructive contract
Quantum meruit
Money had and received
Cotnam v. Wisdom (Supreme Court of Arkansas, 1907)Theory of
Unjust Enrichment
Facts: Harrison got thrown from a street car and rendered
unconscious and two physicians were called and did a very hard
surgery and it was unsuccessfulalso didnt pay the doctors
and they brought a lawsuit on Harrisons estate
Holding: Harrison did owe the doctors money because of
restitution
It would be unjust for Harrison to receive a benefit from the
doctors and they not getting money back
The court remanded the case of determinationdo not
take into an account of how large his estate was
Plaintiff who usually do not prevail in Restitution actions
Officious intermeddlers 2
Officiousvolunteering ones services where they are
neither asked nor needed
parents
Volunteers 57
Gifts
Not manifesting expectations of getting paid
Plaintiffs with other remedies 110, Callano
A person who has conferred a benefit upon another as the
performance of a contract with a third person is not entitled
to restitution from the other merely because of the failure
of performance by the third person.
There is no considerationgratuitous
Also there is no reliance
Assent
Requirement of Assent
A promise is not enforceable if the promissory sufficiently
indicates that he or she does not assent to be bound by the
promise
Perspectives on assentwhich one should be used?
Promisorssubjective
what the person actually thinks
Promiseessubjective
^
Reasonable personlaws attempt at an objective
Rule: Promisor has assented if a reasonable person would think
promisor assented unless promise understands promisor did not
assent
Lucy v. Zehmer (Supreme Court of Appeals of Virginia 1954)
Lucy and Zehmer were drinking and discussing the Ferguson
farm. After drinks they drew up a contract and handed it to
Lucy. Lucy goes through the motion to acquire the property
and the Zehmers said they were just joking. Lucy sues
Zehmers. Zehmers were not assented to be bound because
they were drunk and joking.
Did the Zehmers assent to be bound by the promise to sell their
farm?
Zehmers now say: No: they were just joking, not serious.
Bluffing to see if Lucy had the money. Zehmer whispered
Bargaining
Typical Formation of a Bargainmust have these three elements to
prove a bargain
Optimal preliminary negotiations (e.g. inquiries, invitations, etc.)
does not create contractual liability
Offer by offeror Rest. 24, 26
Acceptance by offeree
Offer= manifestation of willingness to enter a bargain 24
Owen v. Tunison
P thinks two parties entered into agreement. D says no offer.
Statement in dispute: would not be possible to sell unless I
receive 16K. Court: not an offer, merely preliminary
negotiations. The claim was breach of contract for the Bradley
block; there was never an offerstuck in preliminary
negotiations
Court must determine if there was an offer to sell; looks at
precedents
Judicial reluctance to define an offer
Harvey v. Facey
Wanted to buy a piece of property in Jamaica. P asks at what
price would property be sold for. D replies Lowest price: 900
pounds. P replies will buy for quoted price. P sues for
performance. D claims no offer. Court: mere preliminary
negotiations; two questions had to be answered and the plaintiff
didnt
It was still in negotiations; it was very open
General rule=no
The Acceptance
Did the offeree accept?
a.
What was the offer 24 (The offeror is the master of the bargain)
b.
How did the offeror invite the offeree to accept? 32
Complete performance
Correspondence list
Filters proposalpreliminary
Filters approvalacceptance
Filters acknowledgementnotice
Discussion
Corli
es
and
Tift:
Reques White
t for walnutin 21 days
too short
Reques
t for pinecan do it
Chang
e in specs.
Sept.
29 note
ent of work
Sept.
30 countermand
They said that the letter on September 29th was the offer
(everything before was preliminary negotiations)
Greens were going to pay for the roof on credit, and Evertite wanted to do a credit search first.
Carbolic ran an advertisement for smoke balls. Carlill got the flu
from using the Carbolic. They didnt pay and she sued.
The court said that the advertisement was the offer because it
was a reward for anyone getting the flu
General ruleno (it would open the flood gates if it was yes;
contractual liability is voluntary on both sides)
Rationale
Exceptions
Previous dealings
Death of offeror 48
Rejection by offeree
Revocation by offeror 42, 43
Dodds owns property and wants to sell it. Barry told Dickinson
that Dodds was selling the property to Allen. Dodds gave written
affirmation that he was going to sell it and it gives it to the motherin-law who never gave it to Dodds. Barry and Dodds went to look
for Dickinson and Dickinson said he had already sold the property.
Dodds said that he revoked the offer before Dickinson could
accept it. Dickinson believed that there was a contract and said
Dodds revocation doesnt count because Dodds said he was going to
keep it open until Friday at 9:00 am and the order of a contract to be
bound was not correct.
Court ruled that it was nudum pactum (promise without
consideration, nothing was promised in returned). Dodds does not
have to sell the property
The $800 dollars was part of the offer and not binding.
Death of offeror 48
No communication required
Woman died and said that her nephew if he attended the funeral
he would get money from her.
As the attorney can you tell the nephew that if he testifies to the
promise then it could become an ethical issue
Acceptance
Rejection 38(1)
Promise
Action/forbearance
Reasonably expected
Preventing injustice
Can there be liability despite failed or apparently failed
negotiations?
What is a breach
P voted and that made D mad and only paid the salary
Court said that P could not get the fair share of the profits
because the fair share amount is unknown. It was too indefinite for
the court to enforce. It would be "pure conjecture"
Toys, INC. v. F.M. Burlington Company
Toy store entered into a lease with the mall for a five year period.
The lease had an option to renew for another five year period. The
rental rate after the five years was left unknown when P wanted to
renew the lease. P wanted to renew D gave a new figure. There
were negotiations, but then D gave the store to another company.
Statute of Frauds
Statute of Frauds
Year
110(e), 130(1),(2)
Land
110(d), 125(1),(3)
110(a), 111
Only 1 party's promise will take > 1 year 130(1): both promises
to work and do have to be evidence of assigned writing. If one of
the parties will take more than a year to perform than it must be
written down
Promise realistically will take > 1, but contract does not prevent
earlier performance Klewin
Promise to pay
----------> Car Dealer
<----------- creditor
car
Parent
surety
Langman v. Alumni Ass'n
The appellate court said that if you agreed to the deed then you
promise to do it and that it was NOT a suretyship promise because
they didnt promise the lender that they would pay the debt, but the
mortgagor to pay the debt.
This does not need assigned writing because they deed has
already been conveyed 125(b)
Requisites of Writing and Signing 131
o Unless additional requirements are prescribed by the particular
statute a contract within the statute of frauds is enforceable if it
is evidenced by any writing
Essential terms
Lost writings--yes it is not necessary that you have the paper, but
that you can prove that there is writing that had been signed
Richard v. Richard
o
o
Capacity
Incapacity two major types: minority (infancy) and mental infirmity
Married women in common law had incapacities because they were
seen as one person underneath their husbands.
Infants and the Law
Contracts
Infancy is a defense and a basis for rescission 7, 14 Syl.
App.
Often one sided in that the infant can enforce it but the
non-infant cannot force the contract
Restitution-Rest. Restitution 62t cmt.b (not required when the
subject matter or the proceeds are unavailable).
Example cannot return a ruined car
Some companies will not do work with infants, example:
car dealers, large loans
Facts: P bought a five year old car from D when he was underage
(in his contract he said he was 21, but he was a few months short).
After becoming 21 (in a reasonable time afterward) P returned the
car and sued to recover the price. Car had a crack engine block.
P and D make a one page contract that P would sell his ranching
properties to D, P's attorney made it larger and later they made
revisions to make the contract better for P. P was executing the
documents and when everything was pad and the sale almost
completed P rescinded and his wife as the guardian ad litem brought
action against D to set aside the agreement because her husband
was mentally incompetent to the contract and D overreached him.
Court said that the modern rule is that a contractual act by one
claiming to be mentally deficient, but not under guardianship,
absent fraud, or knowledge of such asserted incapacity by the other
contracting party, is not a void act but at most only voidable at the
If pressure the victim can regain what they have lost or the
promise made under duress may not be enforced against the
victim
Rules of Duress
Duress is
o
An "improper threat"
o
That leaves the promisor no reasonable alternative but to
make the promise
175(1), 176(1)(d)
Alaska Packers, 73
Schwartzreich
Examples
Original Contract
Promise to pay $44k
Student ----------------------------------->GW Law School
<----------------------------------Promise to educate
Later on
Promise to pay $2k more
Student ----------------------------------------> GW Law School
To get duress for the second contract the law school couldnt
attend at all (an improper threat). Good faith breach of contract in
this case would be the school would shut down if they didnt get $2k
more money. A bad faith breach of contract would be to just deceive
us.
If you cannot show bad faith is there another way out?
P was going to work but he got a better offer and was going to
quit, but the company made a new contract. After he was fired and
wanted the money from the second contract, but the company
didnt want to do that so could P get the most money?
Court ruled that since both parties mutually rescind the contract
and removed the preexisting duty and had the same consideration
as the original contract
Have a referee judge and had two parties enter into a bargain
and one party makes a new promise. Is the new promise
enforceable?
A half-truth, Kannavos
Kannavos v.Annino
P bought the house from the bank and went to the war and
wanted out of the house because it was filled with termites and P
sues to rescind the contract
Not really
Not really
Mistake
People make promises based on what other people say. A mistake is an
assumption that is thought to be true.
Mutual mistake: where both parties to the contract are mistaken as to
the same basic assumption
Promises induced by a Mutual Mistake 152
"basic assumption"
From the mistake
Material effect
o
Could be easily corrected
Affected party does not bear risk of mistake 154
o
Who's problem is it?
o
Party bears the mistake when the risk is allocated to him
by the agreement of the parties, or that he aware of limited
knowledge of the facts, the risk is allocated onto him from the
court
o
Stees should bear the risk because they would know more
about construction
Sherwood v. Walker (promise to sell cow--->voidable)
She sold it to him for a dollar but then she wanted to rescind the
contract because it was a rough diamond (jeweler thought it was a
topaz)
Some of the courts didnt have SMJ and if you didnt like
what happened in court that you can petition the monarch. The
monarch sent the petitions to the chancellor and he decided
and he had too many petitions and the petitions were given to
subordinate positions in what developed the court of equity
Types of remedies
Legal=damages
No improvement/cutting trees
Benedicts---------------------------------------------> McKinnon
(D) <-------------------------------------------(P)
loan and advice
Court ruled that he could not get the injunction since it would be
too unfair to the D
Did not think the contract was fair and D had to give up a
lot more and P didnt give good advice and the loan wasn't
worth that much
See how equity can police a bargain--could seek and prove damages you
could get them. Most important to look at consideration but since there
is equitable remedy have to look at fairness and you have to evaluate on
fairness
Tuckwiller v. Tuckwiller
John and Ruby Tuckwiller lived on a farm and the house was
owned by Mrs. Morrison (John's Aunt) had parkinsons and became ill
and she would have to be taken care for. Entered into a bargain
with her niece--Ruby would quit her job and take care of Morrison
and Morrison would give her the farm when she died . The aunt
died before she could change her will, Ruby only took care of her
aunt for about a day
Public Policy
Some promises are void because they violate public policy
Examples
Might be a good contract, but it is still bad; the victim is not the
individual, the victim is the people
8.10
16.00
21.20
Bush going to sell to Black and Black sell to Hoover and Hoover
give it U.S.: All work would be done by Bush
Black sued Bush for not making the goods
Why did Bush not have to keep his promise?
Helpful for the consumer and the users. You wouldnt want to
say these are a problem.
I didnt read it
211 and
comment D
on pg. 240,
Klar
If you dont know the writing contains terms you are NOT
bound
Public policy--must state what policies the contract is in
violation of
178,
O'Callaghan,
Henningsen
Unconscionability--developed out of public policy. If the 208, UCC 2court as a matter of law finds the contract or any clause of 302(1) +cmt.
the contract to have been unconscionable at the time it
1
was made the court may refuse to enforce the contract, or
it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of
any unconscionable clause as to avoid any unconscionable
result.
Misc. other statutes regulating substance of contracts
Galligan v. Arovitch
D says they are not liable since the lease included common
areas--had an exculpation clause--the landlord is not liable with
common areas
P said that there was about $1K worth of goods: D said there was
a disclaimer on the stub that they would only pay for $25-exculpation clause on the stub and that's all D has to pay
Klar wants to get out of the clause--could they get out of the
exculpation clause: there was not adequate notice that there were
terms. They are not saying that they didnt have a contract, but
they knew that there was a contract since they handed over the
stuff and they would pay for it. If they argue no contract they do not
have a basis for relationship. They weren't given adequate notice of
the exculpation clause of the terms that the claim check included
terms to this contract
Discouraging negligence
P bought a car and there was a problem with the steering wheel
(came loose)
and that they would not be entitled to a new car, but if you
get into a wreck you just get a new steering wheel
Limited availability
General
availability
346(1)
Possible measurements
344(c),
370
346(2)
356
Limitations
Interest Formula
Restitution: what did they actually lose
Reliance: what they loss + future losses
Expectation: loss in value + other loss -costs avoided-other loss avoided;
[what D promised-[costs P expected-what D delivered]
costs P incurred]
Would be if the contract had been performed; how much worse off is the P
Example 1
Example 2
promise to pay
Owner (D)------------------------->Builder (P)
<------------------------promise to build
Example 3
promise to pay
Owner (D)------------------------->Builder (P)
<------------------------promise to build
Restitution: 40-30=10
Reliance: 60-30=30
Expectation: (100-30) + 0 - (90-60) - 0=40 [has 10 for profit and you add the
reliance)
Sullivan v. O'Connor
P wanted to fix her nose and went to D and promised to pay a doctor's
fee. Doctor wasn't successful and she was not happy with her appearance
What will Berkley choose? Thinking about money what choice will they
pick? They will go with breaching the contract because the damages do
not outweigh the profit.
Limitations on Damages
Avoidability--mitigation of damages (reduce the amount
350 (1),
of damages)
Luten,
348(2),
Jacobs,
Groves,
Peevyhous
e
Uncertainty
352
Damages are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty.
They might not get expectation damages, but they could get
something still.
What may be uncertain:
P didnt want to pay for the bridge and D first sued for the entire
purchase price of the bridge. D wanted to get expectation damages
Expectation formula: [price of bridge-amount paid so far]+0-[costs of
building bridge-{only cost at breach ($1900) OR actual cost at
completion(all costs)}]-0
There was a dispute on the costs P incurred. P wanted the full price of
completion and the D wanted only cost of breach
Court said they could have avoided some of the costs so you go with
the costs at breach. Person cannot pile up damages
Court Held: The second movie was different and inferior because it
was a different movie (subject matter), location of the movie, and P could
have picked her own dance director or anything else about the latter
movie. Net resolve was that she could put in 14 weeks of constructive
labor
o
Dissent: it's not supposed to be the same field and it was
relatively the same contract, but that the legislative intent was to
look specifically
o
Court does not want you to be idle--try to find work
Jacob & Youngs v. Kent
P built the house, but D didnt finish paying for the house because the
contract called for a different type of plumbing then was actually used
(really no difference between the two types of pipes)
o
D thought he didnt have to pay because there was a breach on
contract
Court said you still have to pay and subtract an allowance from the
amount. (Issue was how much to subtract from the payment). Measure of
recovery here: entitled to get cost to remedy but if it was unfairly
disproportionate to get the damages.
P sold a screening plant to D and it was a lease to dig up the sand and
the gravel and leave it in a good condition. After the lease was up D made
it uneven against the contract. P wanted the restoration of the grade
Plurality said that P was able to recover the cost of remedy/complete-rejected restatement. Took another position (difference between contracts
vs. torts)
o
In torts what you try to do how much were you injured, but with
a contract it's not what you were injured but what were you promised
Court followed the Jacobs case--they are not entitled to the cost to
remedy/complete. They could only recover $300.
Purpose of expectation damages--put P where they were originally. Not to
encourage the D not to keep their promises--this is a major debate with
expectation damages
Hadley v. Baxendale unforeseeability
Hadley brothers owned a flour mill that ran with a steam engine and
the main shaft of the engine broke and they couldnt run the mill. Pickford
and Co. owned by D told P that they could deliver the shaft. D promised
next day delivery. D couldnt get it on time and it took 6 day delivery. P
lost 300 pounds and sued D.
Reliance damages
Specific performance
Show
bargain was fair
Damages
wouldnt be
adequate
Liquidated damages
Contest--asked quiz question and they each got the question wrong
and they gave the prize to the other person not P. P's claim that there is a
contract--if he won the contest than he would have won the car--he sues
for breach of contract for not having a fair chance to complete the
contract because he wasnt allowed specific performance to complete the
contract of applying the rules of the game. He claims his loss is and that
he wanted half interest in the car. The court said that P suffered no
damages because of the d's breach of the contract, for it cannot be
assumed nor is it susceptible of proof that had the contest proceeded to a
proper finish he would have become the winner. He may not have won
Fera v. Village Plaza, Inc. extent of loss