Contracts I Outline

Section A: Overview

Chapter I

A. Sources of Contract Law1. Restatement (Second) Contracts-“black letter” rules, default rules2. U.C.C.:

statutory provisions that govern several commercial subjects, including sale of goods.

body of law passed through legislation, adopted by all state (except LA)

makes it easier for courts to facilitate transactions(When applying U.C.C courts borrow from Common Law and vice versa)

B. Purposes of Contract Law (private law)

1. Consent Theory-Free will to enter into contracts, “by manifesting their intention to be legally bound, promisors and promises have consented to a legally enforceable agreement, a contract. Contract law should be designed to impose individual responsibility on those who make such promises (promisors).

2. Will Theory-“contract law should be designed to foster individual liberty, private autonomy, and freedom of transaction in the private sector, subject to minimum controls in the name of collective or public interest. Courts should vindicate the intentions of promisors and promises who willingly exercise this ‘freedom of contract.’”

3. Promise Theory-“ Contract law is necessary to uphold moral values, by recognizing the sanctity of promise. When a promisor invokes the norm of promising, he or she should be held to his commitment.”

4. Reliance Theory-Contract law should be designed to protect promises and their reasonable expectations. When promises act in reliance upon others’ promises, courts should protect them from injury due to broken promises to avoid injustice.

5. Utilitarian Economic Theory- Any rules should make it easier to trade: “the principles of contract law should be designed to maximize the potential gains from transactions by facilitating the process of voluntary trade. Contract law should be utilitarian and based on free market priniciples.

6. Critical Legal Studies Theory- Contract law is not “value neutral.” Contract law has been designed to protect and promote particular vested interest and privileged classes, the “haves” at the expense of the “have nots.” Private law

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should be deconstructed and then reconstructed to serve altruistic, societal interest in the pursuit of social justice rather than the venal interests of individuals.

7. Legal Realists-(Justice Oliver Wendall Holmes) Law is not truth, law reflects values. Principles and assumptions underlie law.

C. Public Policy and Enforcing Promises

1.Cohen v. Cowles Media(MN 1990, US S.C. 1991)-Newspaper reporters did not keep promise to keep Cohen, informer anonymous

Whether a promissory estoppel theory would violate the defendants’ first amendment rights? RL The first amendment guarantees free press-promissory estoppel is trumped by 1st amendment

Whether the law should place legal bearing on a moral and ethical obligation?RL Cannot determine injustice in a moral situation because it would require looking past the issue of if a promise was broken into WHY it was broken. A moral obligation alone will not support a contract (in Minn.) But, Promise Theory says that contract law is necessary to uphold moral values.Reliance Theory-it was reasonable for Cohen to rely on the promiseConsent Theory-reporters never entered into a contract just made a promise and broke it

2. In the Matter of Baby M (NJ 1988)-Surrogacy contract Whether the surrogacy contract was valid?RL New Jersey law prohibits use of money in connection with adoptionsRL Illegal bargains are void from the beginning

Whether there is a statutory basis for parental termination?RL by law could only terminate parental rights by voluntary surrender of

the childRL Custody is decided with BEST INTERESTS of child in mind

Although we have a free market, CONTRACT LAW HAS ITS LIMITS—THIS CASE IS OUTSIDE THE CIRLCE—EXTERNAL POLICY—“we don’t care if you agree, is it enforceable??”

3. “Economic Analysis in the Law,” Judge Richard Posner-trust the free market (regarding baby selling), but there must be some sort of government regulation b/c cannot figure out how to protect best interest of children (ideas are conflicting-cannot have free market with government regulation)

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4. “Exploitation,” John Lawrence Hill All women should be protected Many become surrogate because of economic reasons Some feel that surrogacy commodifies women and children

Section B: Traditional Contract Formation

Mutual assent into a contract=meeting of the minds-an offer which ismade to the offeree

Courts want not only contractual intent, but consideration as well—intent to give this for that

Offeree has power to close the deal Offeror does not have power to make a contract With an offer only, there is no contract, as soon as acceptance occurs, a

contract is created Offeror is master of the offer determines whether a contract is:

unilateral contract- offeror makes a promise and upon performance, a contract is created, i.e. “I promise to give you $16 if you give me your book” bilateral contract-offeror makes an offer in the form of a promise and offeree makes a promise in return

i.e. Ann: “I will give you $50 if you promise to wash my car by 11am ”Leann: “I promise to wash your car by 11am.”

*Most contracts are bilateral

How do we determine that intent exists? Courts use the Objective Theory of Contracts- What a reasonable person would be led to believe, commonly held values, societal norms, not actual thoughts or subjective intentions:

Contractual Intent-outward manifestations (objective theory)1. Expressed statements2. Conduct3. Circumstances (context)

Subjective Theory- the actual facts, intentions (not usually used to determine intent)

Chapter II

A. Contractual Intent, Assent and the Objective Theory of Contracts1. Barnes v. Treece (WA 1976)-Punchboards owner wants money b/c of announcement Treece made

Whether a reasonable person would believe that an announcement of an offer was serious based on conduct, statements, and circumstances?RL If a party’s words or acts judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement

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is established, and it is immaterial what may be the real but unexpressed state of the party’s mind on the subject. § 21

Whether there was mutual assent to form a contract?RL Performance of the act with the intent to accept the offer constitutes acceptance § 22, 23

Example: Berendt meets Coyle in the hall, they start talking. Berendt uses a hypothetical to illustrate an offer and performs it using Coyle as the offeree, in the meantime someone walks by and hears the conversation. Whether reasonable person would believe that their conversation was real or an act depends on the context of the situation and knowledge the passerby had to reasonably believe that Berendt’s offer was real.

2. Morrow v. Morrow-(OK 1980)-family contract for care of mother Whether a family arrangement is enforceable?RL Family arrangements are presumed/intended to be gratuitous—difference between contracts & giftsRL Presumption that family arrangements are gratuitous does not apply to family that is not blood related

In private law no one is obligated to give gifts or be gratuitousEXCEPTION: This presumption can be overcome by specific evidence that the family intended this to be a contract (like getting it in writing will make proving intention easier)

B. Preliminary Negotiations and Invitations for Offers

1. Fleming Co. of Nebraska, Inc. V. Michals (NE 1988)-Preliminary negotiations through letters regarding antitrust suit/claims

Whether preliminary negotiations made through letters of correspondance are binding?

RL A valid contract of sale may be made through correspondence, but letters that were intended as preliminary negotiations are not binding. §26

Offer v. Preliminary Negotiations Offers tend to have language of commitment, preliminary

negotiations lead to offers, but until on party expresses an intention to be bound, such preliminaries are not offers and do not justify the other party’s belief that he or she may strike a bargain by accepting.

2.Mesaros v. U.S.(Fed Circ. Ct. 1998)-advertisement for statue of liberty coins Whether an advertisement is intended to be an offer of sale that can

be accepted to create a contract?

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RL It is possible to make an offer by an advertisement directed to the general public, but some ordinary language of commitment or some invitation to take action without further communication must be present. RL Whether an offer has been made depends on the objective reasonableness of the alleged offeree’s belief that the advertisement or solicitation was intended as an offer. RL Newspaper advertisements are not usually offers, but merely invitations to baragain §26

3. Chang v. First Colonial Savings Bank (VA 1991)-newspaper advertisement for CD

Whether a certain advertisement, directed to the general public, was an offer looking to a contract?RL where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will create a contract. §26

Whether a unilateral mistake voids an offer?RL The offeree must be informed of the mistake before acceptance is completed. A unilateral mistake does not void an otherwise legally binding contract

4. Southworth v. Oliver (OR 1978)-selling land to neighbors Whether a letter sent to more than one person constituted an offer?RL There may be circumstance under which price quotations along with facts and circumstances will constitute an offer which if accepted will result in a binding contract.

*Objective Theory applied: contractual intent, first look for expressed statements and words of promise. If have strong language, most likely an offer. If the invitation names parties, it is more likely to be an offer.

*Custom and Trade-the way in which transactions are executed depends on the what is normal for that specific situation. Those involved in a specific business should understand the way in which sales of land, transactions, etc. are done (what a reasonable person in that business would believe).

C. Duration of the offerWays offers end:

Lapse by express terms Lapse after reasonable time Exclusive mode of acceptance Reasonable mode of acceptance Late acceptance Waiver

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Revocation*As master of the offer, the offeror has power to set procedural terms (can expressly state duration of the offer* Where an offeror fails to state expressed duration of offer, the offer expires within a REASONABLE TIME*even if offeror has set an expressed duration, has power to revoke the offer*option- an offer as well as a contract. Offer loses power to revoke

1. Lapse by express termsa. Pakideh v, Franklim Commercial Mortgage Group, Inc (MI 1995)- unsigned commitment letter, but fee paid

Whether a contract is formed if specified terms of acceptance are not fulfilled (i.e. not accepting before terms have lapsed)?RL An offer comes to an end at the expiration of the time given for its acceptance. An offeree cannot accept, either through words or deeds, an offer that has lapsed.

Whether an offeror may waive any terms of an offer.RL An offeror is entitled to waive the terms of an offer, however, an offer cannot waive the lapse of his offer simply by choosing to disregard it.

b. Sabo v. Fasano (CA 1984) -acceptance of offer to sell apartment occurs after offer has lapsed

Whether a waiver of terms of any offer must be specifically communicated?RL An offeror may waive specific terms of a contract. Although a waiver of terms must be specifically communicated, it is possible that words and deeds may imply a waiver of such terms.

Contradicts Pakideh RE: waiving terms!!

2. Lapse after Reasonable TimeReasonable Time-depends on particular circumstances of the case, analyzed under the objective theory of contracts.

a. Kirchoff v. Rosen (IL 1992)-Styrofoam manufacturing equipment agreement

Whether an offer accepted after an expected term creates a contract?RL If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.§60*If no exclusive mode of acceptance is stated, then turn to reasonableness

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3. Revocation of OfferDirect Revocation- An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract §42Indirect Revocation- An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. §43

§ 2-205 U.C.C. Revocation may be prevented by options in fact/law

a. Greene v. Keener (GA 1991)-rescission of sale of a secretary Whether a rescission of sale prior to acceptance is valid?

RL An offer to contract may be withdrawn by the offeror before its acceptance by the offeree §42

Look at Scottie Pippen/Michael Jordan Hypos!!!

b. Woods v. Morgan City Lions Club (LA 1991)-Bingo Whether an offer existed? Whether sufficient notice was given to r

retract the offer?RL Sufficient notice must be given to retract an offer, and must occur prior to acceptance

4. Irrevocable Offers: Option ContractsOption-contract on a contract, offer held open for a definite duration, independent consideration is paid to offeror, results in TWO contracts.Independent Consideration-paid to optionor by optionee to guarantee option is held open for a definite time.

*lease with an option to buy (cars, real estate). The rent would probably be consideration-for separate independent consideration, could include it in the rent and should be outline in the lease. *In order to ensure that the offeror does not revoke while the offeree considers the offer, the offeree may wish to negotiate for and purchase an option, providing the offeror consideration in return for the offeror’s commitment not to revoke the offer for a state time.*An option is a contract by itself, independent and apart from any agreement which may result from the offeree’s acceptance of the offer held open under the option.

Illustration: With an option to buy there can be three contracts: 1) lease of the property which contains an option, 2) the option itself, 3)the contract of sale which would exist if the optionee/offeree accepted the offer held under the option.

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a. Hamilton Bancshares, Inc. v. Leroy(IL 1985)-stock purchase options Whether an option can be revoked before acceptance?RL If consideration of an option has been paid, the offer may not

be revoked. The option holder has until the end of the option term to accept.

*b. McDonald’s Corp. v. Lebow Realty (MA 1989)-Lease/buy option on real estate

Whether lessor’s notification of offer higher than that outlined in option agreement extinguishes the option of the lease?RL Option may not be revoked before expressed terms.

McDonald’s had 15 days to purchase at option price.RIGHT TO FIRST REFUSAL

5. Termination of Offer by Rejection or Counter Offer

Counter offer:*Counter offer is implicitly a rejection*If offeree states terms that are implicitly different than the terms made by the offeror, this constitutes a counter offer

a. Ryder v. Wescoat (MI 1976)-option to purchase farm, Ryder said he would “pass” on buying the farm

Whether a rejection of an offer terminates the option offer prior to the termination date?RL A rejection of an option which has been purchased for valuable consideration does not terminate the rights of the option holder unless the optionor has materially changed his position prior to a timely acceptance. (they have a right to first refusal)

*This rule protects the right of the option holder to have the opportunity to exercise his option for the full period for which he paid, absent the material change in position. Also protects optionor in that if a rejection is communicated he knows that the option must stay open for the full period so as not to change his position (i.e. sell to someone else) to his detriment.

b. J.R. Stone Company, Inc. v. Keate (UT 1978)-leased then vacated and left substantial damages, then says wants to exercise option, but not according to terms

RL One who desires to exercise an option must do so in accordance with its terms; and where there is a substantial variance between the terms of the option and the offer to exercise it, the latter amounts only to a counter offer, which the optionor is at liberty to accept or reject. If the optionor rejects, he is still required to hold the option open in accordance with the terms outlined.

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6. Termination of Offer by Death or Incapacity

*Under common law, courts have held that offers are terminated in the event of the legal incapacity of the offeror or offeree. §48 (an offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract). THIS RULE DOES NOT AFFECT OPTION CONTRACTS

a. Swift & Company v. Smigel (NJ 1971)-Swift enters into contract, then is pronounced incompetent, no notification is given Whether mental incompetence revokes an offer without notice?RL The incompetancy of the offeror operates to terminate the offer, but only if offeree is given notice.

(NO PRECEDENT CASE FOR THIS….NEW RULE)

*There is a question of whether a person who is mentally incompetent can still enter into and understand the meaning of a contract.*If notice is not given, the apparent effect of the offer continues. A holder of a guaranty should not have to inquire whether a person (guarantor) is/continues to be competent, every time a credit for goods is given to them-- notice should be given!!!

Chapter III

A. The Mirror Image Rule* Offeree’s acceptance must “mirror” the terms state by the offeror in the offer §58,59. An offeree who responds to an offer by varying the terms of the offer has not accepted.

1. Mike Schlemer, Inc. v. Pulizos (IL 1994)-real estate contract not signed by both owners Whether the signature of one of the sellers/owners in a real estate sales agreement results in a contract?RL An acceptance must in every respect meet and correspond with the offer, neither falling short nor going beyond the terms proposed, but meeting them at all points and closing with them just as they stand. (Schlemer wanted to purchase the entire property, so signature from only one of the joint owners was only that person’s interest in the real estate.)

*2. Stark v, McCaw (WA 1973)-correspondance through letters employing Stark as a consultant

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Whether a contract is enforceable even if when the offer is accepted additional terms (a rejection/counter offer) that were never accepted?RL A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms addition to or different from those offered or agreed upon, unless acceptance is made conditional on assent to the additional or different terms (U.C.C. §2-201)RL Where a person, with reasonable opportunity to reject offered services, takes the benefit of them under the circumstances which would indicate, to a reasonable person, that they were offered with the expectation of compensation, a contract, complete with mutal assent result. § 72(1)RL In a personal services contract, payment should be made for services rendered.

THIS CASE WAS WRONGLY DECIDED!!

B. Mode of Acceptance*When an offeror has not required and exclusive mode of acceptance, use objective theory to determine whether a reasonable mode of acceptance has been utilized to form a binding contract.*A bilateral contract may be accepted in more than one way:

1. Actual Performance2.Promise

1. Crockett v. Lowther (WY 1976)agreement to sell land never signed by purchaser

Whether after paying consideration for an option to purchase land a contract exists even if the exclusive mode of acceptance (signing of the document) was the term required for exercise of the option?RL When an offer prescribes the place, time, or manner of acceptance its term in this respect must be complied with in order to create a contract. In the absence of signatures where intended, there is no contract.

*THE DEFAULT RULE CAN BE OVERCOME BY AN EXCLUSIVE MODE OF ACCEPTANCE*

2. Panhandle Eastern PipeLine Co. v. Smith (WY 1981)-agreement to revoke employees termination, employee adds additional terms

Whether comments written upon an offer would constitute a rejection of the original offer and form a counter offer that could be either accepted of rejected?

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RL An offer must clearly and definitely express an exclusive mode of acceptance. In addition, an acceptance is still effective if the addition only asks for something that would be implied from the offer and is therefore immaterial.

**This is an EXCEPTION to rule that an offer must be accepted unconditionally and by terms outlined

3. Goren v. Royal Investments (MA 1987)-Offer to purchase property signed and included agreement to execute purchase and sale agreement. Third party makes higher offer and seller sells to them and notifies original buyer 24 hours later

Whether terms in a preliminary document can serve as a contract?RL Language looking to execution of a final written agreement justifies a strong inference that significant items of the transaction are still open and that the parties do not intend to be bound.

**EXCEPTION: If however, the parties have agreed upon all MATERIAL terms, it may be inferred that the purpose of a final document which the parties agree to execute is to serve as a polished memorandum (final writing) of an already binding contract.

Theories applied:Reliance Theory- people need to know whether a transaction is going to occur, cannot be left dangling!Utilitarian Economic Theory- this exception (above) makes it easier for people to transact.

4. Vogt v. Madden (ID 1985)-sharecrop agreement for beans Whether silence constitutes an acceptance of an offer?

RL Silence or inaction, or mere silence or failure to reject an offer when it is made, does not constitute an acceptance of an offer. There must be an expressed intent to be bound (outward manifestations—objective theory)

*silence ordinarily cannot serve as acceptance because there is an absence of outward manifestations. There would be subjectivity then if there were no outward manifestations and courts cannot rule on subjective elements (i.e. what the parties actually intended to do rather than what their outward manifestations showed them to intend to want to do)

EXCEPTION (§69): Silence can serve as acceptance when:

1) an offeree takes the benefit of offered services2) where an offeror has given offeree reason to understand the acceptance may be made by silence

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3)Previous dealings4) if goods or property are offered, and offeree holds onto them

5. Hoffman v. Ralston Purina (WI 1979)-Horses died from feed, check for settlement held for seven months

Whether acceptance of an offer of settlement is complete if silence is maintained and if settlement check is held?RL An assent or acceptance of a contract offer can be manifested by deed as well as by word.

Whether a settlement agreement should be based on previous dealings?

o No, because settlement agreements become adversarial/sometimes hostile and are not comparable to previous business dealings.

C. Dealing at a Distance and the “Mailbox Rule”

* Mailbox Rule- acceptance when dealing at a distance is effective at dispatch.*Mail must be an IMPLIED or EXPRESSED reasonable mode of acceptance

(If the offeror uses mail to extend the offer this is PRIMA FACIE evidence that mail is a reasonable mode of acceptance.)

*An offeror DOES NOT have to use the dispatch rule. Can say that any acceptance that is mailed is effective upon RECEIPT!!!

*Acceptance of an Option contract is effective upon receipt because if an expiration date of the offer is prescribed, the acceptance must be received by that date. If this were not so and exercise of an option did not have to received (in the mail) by the expiration date, then this defeat the whole purpose of an option contract. *The ABA treats e-mail as instantaneous—effective upon receipt, even if not read upon receipt!!!*If a private messenger service is used, acceptance may be recalled, and thus, is only effective upon receipt.

1. Morrison v. Thoelke (FL 1963)-contract of realty sale signed and mailed, seller calls and revokes before buyer receives

Whether an oral revocation of an acceptance of an offer made prior to receipt of acceptance through the postal service is valid? When is a contract complete and binding, when the acceptance is dispatched or when it is received?RL Insofar as the mail is an acceptable medium of

communication, a contract is complete and binding upon posting of the letter of acceptance, not upon receipt. §63(a)

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D. Notice of Acceptance

*§54 (Acceptance by performance; necessity of notification to offeror):

1) if an offeror invites offeree to accept through performance, no notification is necessary.2) if an offeree performs but knows that the offeror has no way of knowing of acceptance by prformance, the contractual duty of offeror is discharged unless:

(a) the offeree exercises reasonable diligence to notify the offeror of acceptance(b) the offeror learns of the acceptance within a reasonable time(c) the offer indicates that notification of acceptance is not required

Also, Where the offeror maes an offer looking to a bilateral contract and the offeree purports to accept with a promise, the need to notify the offeror is generally greater §56 except as in §69 which governs acceptance by silence or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror or acceptance or that the offeror receive the acceptance seasonably.

* NOTE CASE: Carlill v. Carbolic Smoke Ball Co.

1.National Advertising Co. v. Herold (MO 1987)-City of Berkeley, sign ordinance, notification of lease of land for advertising

Whether reasonable notification was made when accepting offer (of lease of land for advertisement) or was offer to lease land effectively revoked?RL The offeror can revoke or withdraw his offer at any time before acceptance and communication of that fact to him, eve though he may have agreed (without consideration to hold the offer open for a specified time.RL In a bilateral contract, requirement of notification is greater

E. Unilateral Contracts

1. Rewards* offers of rewards are offers looking to unilateral contracts

INTENT v. MOTIVE*motive is largely irrelevant in contract law-courts.

Intent-using volition, voluntary exercise of one’s will to do somethingMotive-Ultimate objective

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*If doing a deed without knowledge of the reward, then doing deed for some other reason *If performance of deed is required by law, not done voluntarily, probably not going to be entitled to the reward

a. Glover v. Jewish Veterans post No. 58 (D.C. 1949)-reward for info on murder suspect not known prior to providing info

Whether a person must know of an offer in order to receive it?

RL A person must know of a private offer of reward in order to accept.

EXCEPTION: An offeree who performs the act requested w/out knowledge of a private (non-government) offer of reward is not entitled to receive the reward; HOWEVER, if a governement reward is offered and offeree performs the act w/out knowledge, offeree is entitled to the reward.

b. Cobaugh v. Klick Lewis (PA 1989)-reward for hole-in-one Whether notice of an offer of reward for a

previous event is not removed and someone else sees it and performs, if the offer is enforceable.

RL A unilateral mistake does not void an offerRL A reasonable person is justified in believing that he or she may accept an offer in a prize-winning contest by performing the requested act.

2. The Effect of Part Performance

Example: B tells S that he will give S $50 to walk tohe Brooklym Bridge. S starts walking, thus B may not revoke offer before the reasonable amount of time it takes S to walk across the bridge, Once S starts walking, he has provided consideration to keep offer open for a reasonable amount of time it would take him to walk across the bridge.-If S does not complete performance within a reasonable amount of time, there is no contract.-S can turn around and not complete performance and no contract would have been made because he did not complete acceptance.

* Need to give offeree a chance to complete performance once it has begun—offeror cannot revoke before reasonable amount of time it takes to complete performance.

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*In an offer looking to a unilateral contract, offeree does not have to complete performance and then no contract would have been made b/c acceptance has not been completed.**In an offer looking to a bilateral contract, contract is formed once performance has begun or is promised—performance must be completed. *option at law- not a real option but a device court’s have used-once perfomance has begun, must give offeree a reasonable amount of time to complete performance. Once performance has begun, cannot revoke offer. §45

a. Taylor v. Multnomah County Deputy Sheriff’s Retirement Board (OR 1973) Whether a tender of part performance furnishes consideration

of acceptance of an offer?RL If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract. §45

b. Ragosta v. Wilder (VT 1991)-Fork Shop, whether financing is considerationRL A performance of return promise is bargained for if it is sought by promisor in exchange for his promise and is given by the promisee in exchange for that promise.RL Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. What is begun or tendered must be part of the actual performance invited in order to preclude revocation….§45RL Under a unilateral contract, an offer cannot be accepted by promising to perform; rather; the offeree must accept, if at all, by performance, and the contract then becomes executed.

Chapter IV

A. Bargained for Consideration*Generally believed that common law courts adopted consideration to distinguish between contracts and gifts*Consideration as a requirement is not necessary

CONSIDERATION=Legal Benefit to promisor OR legal detriment to promisee + Bargained for exchange

*Benefits and detriments do not have to be real, they can be potential.*Consideration must be evident at the time the contract is entered into*CANNOT exchange $ for $*Bargained for exchange-intentional exchange of this for that

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1. Browning v. Johnson (WA 196)-sale of medical practice, changed mind Whether giving up a contract of sale is legally sufficient

consideration to support a promise?RL There is sufficient consideration to support a promise in a unilateral contract if the promisee incurs a detriment at the promisor’s request or the promisor receives a benefit

* Adequacy v. Sufficiency*adequacy is a comparative value, sufficiency is something the law recognizes is of legal value but do not care how much

RL A consideration sufficient to support a promise need not always have an actual value (i.e. giving up a legal right to marry)*courts may inquire into the adequacy of consideration when the plainfiff seeks an equitable remedy, such as an injunction or specific performance

B. Past Consideration and Moral Obligation* Past Consideration is no consideration, and any moral obligation the recipient of the gratuity has to the donor will not support the recipient’s promise to compensate the donor.

1. Dementas v. Estate of Tallas (UT 1988)-duties performed for Tallas, Tallas promised to give Dementas $50,000 but never put it in his will * Whether past acts provided consideration to a later promise?RL Events which occur prior to the making of the promise and not with the purpose of inducing the promise in exchange are viewed as “past consideration” and are the legal equiv. to no consideration because the promisor is making the promise because those events occured, not to get them. There is no bargaining, no saying that if you will dothis for me, I will do that for you. RL Acts done gratuitously do not equal consideration

*EXCEPTIONS to rule that moral obligation cannot serve as consideration:1) A debtor’s promise to pay a debt barred by a statute of limitations is enforceable.2) A party who may avoid a promise due to incapacity or some other traditional ground for avoidance, may make a new, enforceable promise to perform the voidable obligations3) Bankruptcy

C. Pre-Existing Legal Duties

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*If someone promises to do something they are already legally obligated to do, that promise is not consideration! However, if a promise is made to do something similar but different than what one is legally obligated to do serves as consideration.*The Hold-Up Game-threaten to withhold performance and give some other consideration

1. Kudor v. Schroeder (N.C. 1993) -oral agreement in marriage to pay for husband’s education

Whether the duty of support in a marriage may be modified in an agreement (in North Carolina)?RL In N.C. there is a personal duty of each spouse to support each otherRL An agreement which is not reasonably certain as to its material terms (subject matter, price, payment terms, quantity, quality, duration, time and place of performance) is indefinite and will not be enforced.

2. White v. Village of Homewood (IL 1993)-exculpatory agreement for agility test to become fireperson

Whether consideration to an exculpatory agreement to a legally required test was paid upon participation, rendering the agreement enforceable? RL Consideration cannot flow from an act performed pursuant toa pre-existing legal duty. Where a party does what it is already legally obligated to do, there is no consideration as there is no detriment.

D. Disputed Claims, Settlements and Modifications*Whether a person has a cause of action for a claim can give up that claim

1. Dyer v. National By-Products, Inc (IA 1986)-Dyer injured in accident, employer promises lifetime employment, Dyer claims forbearance of an invalid claim

Whether forbearance from pursuing a claim that was invalid at the time of forbearance provided sufficient consideration to a promise?RL (minority view) settlement of a disputed or doubtful claim in good faith is sufficient consideration fro a compromise, even though judicial investigation might show claim to be invalid. Even though the invalidity later becomes clear, the bargain is to be judged as it appeared to the parties at the time. §74

Liquidated v. Disputed

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Liquidated-amounts admittedly owed/acknowledgedDisputed-challenged, questioned contested

*For pre-exisiting legal duty to take effect, an amount owed must be liquidated AND undisputed. In other words, an amount owed must be aqreed upon but not challenged

*If one acknowledges (liquidated) that they owe $ (like on a credit card) and does not dispute any other part, then writes a check for a part of what is owed, but writes on the check “In full settlement of all claims”—THE FULL AMOUNT IS STILL OWED!!

*The pre-existing legal duty rule was created to prevent the:Hold-up Game-when one who has a duty to perform refuses to perform, and in effect coerces modification of an agreement (i.e. Alaskan Fish Packers)

RL One cannot withhold an amount admittedly due to extract a settlement. Cannot extract a settlement by promising to perform a pre-existing legal duty

2. Field Lumber v. Petty (WA 1973)-Petty refuses to pay part of balance, but sends check with partial amount stating that it is in full settlement

Whether a check to settle on a disputed balance that is less than the disputed balance serves as consideration to a settlement?RL Where a sum due is not acknowledged (unliquidated) or disputed and a remittance of an amount less than that claimed is sent to the creditor with a statement explaining that it is full satisfactiopn of the claim, the acceptance of such a remittance by the creditor constitutes full accord and satisfaction.

EXCEPTION: Where a portion of the alleged debt in excess of the amount paid is acknowledged and not in dispute, a debtor cannot unilaterally tender a lesser sum than that which it is agreed is due and owing and rely upon the retention of that sum as a full settlement of debt unless there is some additional (bargained for) consideration given therefore. (Payment of an amount admitted to be due does not furnish consideration to an accord and satisfaction of the entire claim).

At-Will Employment-when one is employed at-will, they may be terminated by their employer or quit at any time for any reason. At-will employment is employment without a term of duration (indefinite or not stated). Although an employment contract may exist, a duration may still not be stated).

*In Illinois:Tort of Retaliatory Discharge-one is fired, i.e. for reporting something a fellow employee has illegally committed against the company

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Implied Contract in Fact-an employee who would otherwise be an at-will employee, at time of employment is given a handbook qualifying the employers right to fire the employee—“you will not be fired unless…” and so the at-will arrangement is modified.

*If procedural terms are included, an employer/employee is no longer at-will

3. Doyle v. Holy Cross Hospital, (IL 1997)-nurses hired and given a handbook modifying at-will status, then hospital modifies handbook to at-will employment and nurses continue working after modification

Whether modifications of an employment handbook are a legally binding change?RL Traditional contract principles allow modifications of contracts to be enforceable AS LONG AS additional consideration is given to support the modification. A modification solely for the benefit of one of the parties is not enforceable. A modification of an existing contact must be bilateral and uncoerced.

EXCEPTION: additional consideration is unnecessary to support a modification where the parties voluntarily enter into a fair and equitable modification due to unanticipated circumstances.

4. Angel v. Murray (RI 1974)-garbage collection pay increase approved by city

Whether a modification to a contract that is agreed upon by both parties is enforceable?RL a modification without consideration is binding if it fair and equitable (terms are accepted by both parties)The modification must be made:

1) Before contract is fully performed on either side2) The circumstances prompting the modification are unexpected3) The modification is fair and equitable

*These prevent the hold-up game. * The KEY is absence of coercion-we need to make sure that the request to modify the contract was not to hold-up the contract.Any modification needs to be a product of good-faith, voluntariness, non-coercion!!!

E. Illusory Promises

Illusory Promise- a statement that appears to be a promise but in fact is empty of commitment (If you do this, I promise to give you that, if I feel like it), however if a promise relies on something outside of one’s control (I will do this, unless it rains) this promise may serve as consideration. §76,77

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*An illusory promises allows the promisor to retain the right of whether or not to perform the promise at all.*The indefinite nature of the promise defies legal enforcement.*What is the intent of the parties at the time of the agreement??

A + B = (A + B) =K

A + O = A (I promise to teach you for two weeks, I promise to give you an exam if I feel like it—first promise not illusory, second is, but first promise wins b/s second promise does not relate)

O + O = O (I promise to teach you for two weeks if I feel like it, I promise to give you an exam if I feel like it)

A OR B = Either/Or (either I will teach you or give you a test—this IS consideration!)

A OR O = O ( I promise to teach you for two weeks OR I will give you an exam if I FEEL LIKE IT—the promisor has reserved the right not to perform)

O OR O = O

1. Pando by Pando v. Fernandez (NYS 1984)-boy agrees to buy lotto tickets and pray to his saint for Fernandez to win. If she wins, will split money 50/50. She wins and refuses to give boy (Pando) the money

Whether an agreement based on beliefs founded in faith can be tested in law?RL Beliefs founded on faith cannot readily be tested on motions directed to the sufficiency of evidence, or on appellate review. It is impossible to prove that a miracle occurred (that she won because of his prayers)

2. Pando v. Fernandez (NYS 1986)-this court looked at the intent of the parties when the agreement was made. (all that needed to be done was for Pando to buy the ticket, pick numbers and pray to his saint)

Characterization of facts- Interpretation of facts

3. Utility Appliance Corp. v. Kuhns (PA 1958)-distributor granted franchise to sell manufacturer’s appliances. Commission amount disputed

Whether a promise constitutes consideration if it does not specify obligations?RL a statement or manifestation which appears to be a promise but which is, in fact, empty of commitment is “illusory.” And cannot serve as consideration.

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4. Bonner v. Westbound Records, Inc. (IL 1979)-Ohio Players sign contract with one company then sign another and try to rescind. Request DECLARATORY JUDGMENT (equitable relief)

RL: Actual/adequacy of consideration-adequacy of

consideration must be determined as of the time a contract is agreed upon, not from the hindsight of how the parties fare under it.

THIS IS AN EXCEPTION TO THE RULE THAT SUFFICIENCY OF CONSIDERATION (WHETHER THERE WAS ANY AT ALL) IS ALL THAT MATTERS!!! IT IS BECAUSE THE P HERE REQUESTED EQUITABLE RELIEF!!!

BEST EFFORTS v. GOOD FAITH EFFORTS-Best efforts- needs to come from a commitment to do somethingGood faith-this is a contract concept. All contracts are entered into with the intent of good faith*even contracts that are defective due to a lack of mutuality at inception may be cured by performance in conformance therewith.

5. Andreoli v. Brown (Ohio 1972)- option to purchase land. $10 consideration paid (not known who paid it). Property transferred to third party, seller dies and T.P. refuses to sell to Andreoli.

Whether an option agreement to sell at one’s election is enforceable if the second promise is specific?RL A writing is interpreted a s a whole, and all writing that are part of the same transaction are interpreted together.

6. Laclede Gas Co. v. Amoco Oil Co. (MI 1975)-Agreement to supply propane gas attempt to terminate

Whether mutuality of consideration exists when there are provisions giving only one party the right to do something (like cancel a contract) but implies all goods will be bought from that party?RL An act of forbearance is consideration (If forbear from purchasing from a third party, it is implied that A plans to purchase only from B)

Requirements Contracts*“I’ll buy everything I need from you.” (but what if I need nothing?)*In modern commerce, requirements contracts, etc. are devices commerce wishes to use

Chapter VReasonable Certainty of Contract Terms

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Certainty of Terms-if terms are sufficiently certain, more likely K intent existed.If terms are not certain, most likely only preliminary negotiations have occurred.*If uncertain terms are present, there must be a strong expression of contractual intent to make up for the lack of certain terms.*Courts need certainty of terms b/c otherwise they cannot define what the parties’ commitments are and if they can’t do this, then it is impossible to provide a remedy.

A. Pyeatte v. Pyeatte (AZ1983)- agreement between married couple to pay for schooling-same as Kudor v. Schroeder

Whether an agreement is binding if its terms are uncertain?RL In order to be binding, an agreement must be definite and certain so that the liability of the parties may be exactly fixed.

B. Deadwood Elks Lodge No. 508 v. Albert (SD 1982)-lease agreement for building, rent upon renewal not outlined in lease agreement…to be negotiated

Whether an agreement to agree is a reasonably certain term?RL An agreement to agree does not fix a reasonably certain termRL A court does not function to rewrite, make contracts, or fix terms of agreements for parties in dispute.

C. Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp.(NY 1989)-Plea Bargain-get out of nursing home business)

Whether an option agreement that does not fix the purchase price, but provides a method for determining that price is enforceable?RL A price term is not necessarily indefinite because the agreement fails to specify a dollar figure, or leaves fixing the amount for the future, or contains no computational formula—a method for determining the price is enough

***D. Moolenaar v. Co-Build Companies, Inc. (DVI 1973)-goat herder has option to renew lease and new buyers substantially increase his rent!

RL Any ambiguity regarding price is going to be construed against the landlord (or the person who wrote the lease/agreement) (i.e. a rental price should be determined by the intent that it would have been used for at the time the lease was entered into.)RL A court is willing to provide a missing term or to resolve an ambiguity in an agreement must still decide which terms govern the parties’ transactions

E. Shrum v. Zeltwanger (WY 1977)-question on the definition of the word “cow”

Misunderstanding v. Mutual Mistake §20 Misunderstanding- if one person thinks A and another thinks B about the same matter, then there is no meeting of the minds and this is a misunderstanding.

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*Most of the time the court will try to determine which meaning prevails and will determine there is a contract because the court’s will decide that one meaning is more reasonable—THERE CAN BE A K WITH A MISUNDERSTANDING*There can be some extreme situations in which the each party did not know the meaning attached to the other, and therefore, even though there was a misunderstanding, there is no contract!

Mutual Mistake-When both parties think B, but the answer is really A, both parties share the same misconception—there is a meeting of the minds, and thus a mutual mistake

* There can be no contract with mutual mistake!!

Berendt’s Short Test in how to determine whether a mutual mistake or misunderstanding occurred :

Ask: Both parties erroneously believed ______?*If can fill the blank in with ONE idea based on the facts, then this is a mutual mistake, if not then it is not a mutual mistake.

CHAPTER VIUNJUST ENRICHMENT

Unjust enrichment- When a party receives goods or services at the expense of anotherHow to determine if one has been unjustly enriched:

1) The defendant is enriched

2) The defendant’s retention of the benefit would be unjust

3) The Plaintiff expected remuneration

4) Either a direct relationship or a mistake (services may have been delivered by mistake or by accident)

5) There is no cause of action (this should really be the threshold question—Is there any other way for the Plaintiff to recover on something other than a contract theory?)

*The above all lead to an equitable judgment *Parties should be required to pay for goods or services provided to them, although there was no contract establishing the respective obligations of the parties to perform and to pay. *The law takes the general position that one party should not be enriched at the expense of another.*Unjust enrichment is also sometimes called “quasi contracts” (looks like a contract but really is not) and “quantum meruit.”

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*punitive damages are sometimes awarded because these cases are more like tort cases rather than contract where punitives are not available:

b/c quasi contracts are not a product of the parties autonomy or will In a contract the parties define the difference between

whether the contract is implied at law or in fact. In a contract implied at law or at will, the duties come from

actual thought up duties. The difference is that in a quasi contract, the duties come

from equity, fairness, public policy-SOCIETAL EXPECTATIONS-do the right thing The duties are externally-opposed on parties by society (like

tort) A cause of action comes somewhere between contract and

tort Quasi contracts have very little to do with negotiated or

expressed duties When specific services are provided or received, society

expects these services to be paid for/pay should be received

EXAMPLE: Closen and Berendt are walking back to JMLS from lunch. They are coming from opposite directions. Closen is standing on the corner waiting for the light to change and is eating a banana. Berendt sees Closen. Berendt has also just completed and received CPR training and certification. All of the sudden, out of nowhere a car goes speeding around the corner Closen is on and startled he falls to the ground and the banana gets lodged in his throat. Berendt rushes over and gives him the Heimlich maneuver and the banana goes shooting out of Closen’s mouth. At the same time a doctor who is walking by with her doctor bag, reaches into her bag and gives Closen a shot if adrenalin. Then, an ambulance pulls up and the attendants come over with a gurnee. Closen waves off the gurnee but allows himself to be helped up and willingly goes in the ambulance to the hospital. He does not allow himself to be admitted to the hospital. He later gets three bills. One from Berendt for $500, one from the doctor for $1,000, and one from the hospital for $2,000

Q: Who will recover? Berendt?A: No, there was no contract implied at law or in fact

because Closen could not speak (he was unconscious). Although Closen was enriched, the reasonable person in the position of Berendt should not believe he is entitled to remuneration. Berend’ts CPR training was acquired with the knowledge that if he ever used it would be a gratuity. His profession does not require the use of CPR tactics.Q: Will the doctor recover?A: Yes. Irrespective of the results, this is enrichment. Would the retention of the services without payment be unjust? Yes, the doctor is in a profession in which she expects remuneration for her

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services. Was there a direct relationship? Yes, the doctor/patient relationship. Also, there is no other cause of action because Closen was unable to enter into a contract.Q: Will the hospital recover?A: They will be able to recover for the transportation by the ambulance to the hospital. Closen accepted to being helped up and brought to the ambulance by silence. He voluntarily entered the ambulance.

EXAMPLE of unjust enrichment by mistake: A painter has an order to paint the exterior of Schriber’s house. The numbers on the order are difficult to read and the painter begins painting Weissler’s house. Weissler sees this, but does not say anything, then refuses to pay for the job.

Q: Will the painter recover?A: Yes, there is no direct relationship, but there was a mistake in

the delivery of the service. It is unjust enrichment because Weissler could have spoken up. He accepted by silence. Weissler had an OBLIGATION to speak up and stop the painter.

*When analyzing such a situation, use acceptance by silence first, then fall back on unjust enrichment.

A. Cotnam v, Wisdom (Ark 1907)-doctors did operation on man who falls off streetcar, the man does not survive. Doctors want remuneration for operation.

RL A person without any senses because of an accident or disease may be held liable for necessaries furnished to him in good faith while in that unfortunate and helpless position.RL So that a surgical operation can be conceived and performed with due skill and care, the price to be paid therefore does not depend upon the result. The surgeon who brings to such a situation due skill and care, earns the reasonable and customary price therefore, whether the outcome be beneficial to the patient or not.

*We want people with the applicable professions (doctors, etc) to help people if they are in distress. We do not want them to think that they will not be compensated for their services.

B. Dewey v. American Stair Glide Company (MO 1977)- Dewey comes up with an idea for safety device for elevator chairs. Company uses his idea. He wants remuneration.

RL When one person receives from another a benefit and retains it without compensation, unjust enrichment has occurred.

C. Callno v. Oakwood Park Homes Corp. (NJ 1966)- Shrubbery bought but not paid for.

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RL To recover on a theory of quasi-contracts or unjust enrichment the plaintiffs must have some direct relationship with the defendant OR the service must have been provided by mistakeRL To recover on a theory of quasi-contracts there must be no other cause of action

D. Advance Leasing & Crane Co. v. Del e. Webb Corp. (AR 1977)-crane leased from third party (Meyeres) from Advance at higher price than Del Webb approved. There was another cause of action (for Advance to sue Meyeres)

E. Pyeatte v. Pyeatt (AR 1983)-married couple’s arrangement to pay for each other’s education (may also be a promissory estoppel case)

RL If one party receives a benefit at the other expense=unjust enrichment

F. Deck v. Jim Harris Chevrolet-Buick (Ind. 1979)- car repaired for price over what was agreed to (a contract in fact). In this case retention of the benefits is not unjust because there was a contract.

RL If a contract exists and it has limitations and one party steps over the limitations and provides surfaces that are more costly without approval, the retention of the benefits IS NOT unjust enrichment because the terms of the contract were breached.

CHAPTER VIIPromissory Estoppel

* For promissory estoppel to occur, three things must be determined:1) Promisor makes a promise he reasonably expects the promisee to rely on2) The promisee in fact reasonably relies to his detriment on the promise3) The Promise must be enforced to avoid injustice

*Estoppel does not allow a promisor to deny there was consideration—a promisor is prevented from denying that consideration was paid on the promise b/c the promisee reasonably relied to his detriment and thus the promise is enforceable because, as Cardozo says, the reasonably reliance substitutes consideration.

*In estoppel cases a contract does not exist because there was no bargained-for exchange.

*Estoppel is sometimes used to enforce charitable subscriptions (like a college has started building a library b/c it relied on the donation from an alumnae and then that alumnus won’t contribute)

*Equitable Estoppel- used to prevent a liar from saying something to represent what exists

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*Remedy for promissory estoppel-out of pocket expenses. According to §90 Rest. 2nd of Contracts, promissory estoppel is treated as contract case and one may receive damages for expected loss

A. Ricketts v. Scothorn (Neb. 1898)-grandfather makes promise to give granddaughter $ so that she does not have to work.

RL When a reasonable person relies on a promise to his detriment, the promisee is entitled to enforcement of that promise.

B. Hoffman v. Red Owl Stores (Wis 1965)-Man sells his grocery store and bakery relying on a promise made by a corporation to give him a franchise of their grocery store.

RL When a promisor makes a promise knowing that the promisee will rely on the promise, the promise must be enforced.

C. Ravelo by Ravelo v. County of Hawaii (HA 1983)-man relied on new employment as a police recruit

RL Under §90 of Restatement 2nd, a promise binding is a contract!-That means expectation damages should be awarded!!!

CHAPTER VIIIImpairment of Free Will

A. Minors

Voidable v. Void

Voidable-a contract until someone acts to avoid it!Void- never a contract, void from the beginning

* Only the minor has the power of avoidance. The adult on the other side may not try to avoid a contract with a minor.*A minor can disaffirm the contract at any time during minority (or by guardian or best friend)*Once a minor reaches majority, he may still avoid the contract, but must do so within a reasonable amount of time. If this is not done, then the minor is held to have RATIFIED the agreement.

*EXCEPTION: Necessaries- There are some situations in which the minor NEEDS the goods or services. We want to encourage people to deal with minors for things they need. We don’t want the dealers to think that they won’t receive

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restitution. If the minor had to rely on his or her own credit, then we want the serviceperson to do business with them. RL IF THE CONTRACT IS FOR NECESSARIES, ORDINARY AVOIDANCE IS NOT ALLOWED.

*A minor is not obliged to use any specific words or perform any acts to avoid a contract*If consideration is tangible the minor must give it back (obliged to perform restitution), if not then need not be restored.*If the property has experience dissipation (normal wear and tear) then there is no need for restitution.

EXCEPTION: If the minor maliciously/tortiously damages the property, the restitution is required.

*How is restitution determined when the minor avoids a contract?1) Fair and equitable amount2) How urgent was the minors need at the time3) Did the minor have to rely on his own credit?

1. Tracey v. Brown- (Mass. 1928) Kid buys car when minor, avoids the sale

RL A minor is not obliged to use any specific words or perform any specific acts in order to avoid a contractRL A minor can avoid a contract and is not obliged to put the other party in status quo or allow anything for the rent and use of the property while it is in his possession

2. Adamowski v. Curtiss-Wright Flying Service, Inc, (Mass 1938)- Adam. paid for and received flying lessons. Want his money back AFTER the lessons have been taken.

RL One who enters into a contract while a minor may disaffirm the contract after turning of age WITHIN A REASONABLE TIME. RL A contract for intangible benefits may be disaffirmedRL A plaintiff suing to recover money paid while a minor for tangible property which he returns must allow for its depreciation while he had the use of it.

B. Mental Infirmity/Insanity §15

*The modern approach to dealing with the mentally incapacitated is to encourage them to assimilate into society as much as possible. Now we do not really look away at the mentally incompetent (not put in homes anymore).

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*This is not saying that we should not protect these people, but we should not OVERprotect them.*If we avoided all contracts made with the mentally incompetent, it would discourage those who provide services and god from dealing with people (it is a matter of public policy)

Two Categories:1) One who cannot understand the nature of contract, does not have contractual capacity

* If one makes a contract with such a person, but does not know, the contract may be avoided within a reasonable amount of time of finding out.

EXCEPTION: If one party does not know of the other party’s cognitive inability, but the terms of the contract are reasonable and made in good faith, the contract may not be avoided.

2) One who understands the nature of the contract being entered into, but cannot control himself (impulsive)

*In this situation, the other party must know about the condition in order for the contract to be avoided.

Case: Ortelere v. Teachers’ Retirment Board of The City of New York (NYS 1969)-teacher is mentally ill, changes her application for pension to

cover her and beneficiaries during her life but not after death.RL A person incurs only voidable contractual duties by entering into a

transaction if by reason of mental illness or defect he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition

RL Contracts of a mentally incompetent person who has not been adjudicated insane are voidable, even where the contract has been partly or fully performed it will still be voided upon restoration of the status quo

RL The cognitive test is not applicable in all cases.

ECCENTRICITY v. MENTAL INCAPACITY

EXAMPLE: Mason Lee Case (man leaves his estate of $50,000 in 1827 to the states of Tennessee and S. Carolina because he claims his family are all witches and products of the devil. Court ruled he was just eccentric)

C. Intoxication* The person claiming avoidance by intoxication has a more difficult time of avoiding a contract than the mentally incompetent because this is a state in which one self-induces.

To avoid a contract by claiming intoxication there are two requirements:

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1) The person who was intoxicated at the time the contract was made must prove that they lacked the capacity to understand the contract2) The other party must have known of the intoxication!

EXAMPLE: (Reiner case) A drunk woman bumps into her soon to be ex husband at a bar and they decide to execute a dissolution agreement right then. They go to the lawyer’s office and execute the agreement. The woman demands a check for her part of the settlement on the spot and receives it. The court found that she could not avoid the contract due to intoxication b/c she remembered every bar she went to and knew how many beers she had drunk and she received a substantial, and fair, settlement check as she requested while at the lawyer’s office.

D. Duress §176*Duress is a WRONGFUL act, that need not be illegal, just wrongful and unfair to coerce someone into doing something against their will.

How to determine if duress has occurred:1) Were the terms imposed involuntarily?2) Did the party have no other alternative but to agree?3) Were other coercive acts existent?

*Look for evidence of bad faith (especially when a settlement is coerced for a unilateral transaction*Duress usually occurs with excessive force (practically a gun being pulled to one’s head)

1. Eckstein v.Eckstein (MD 1978) –Wife leaves home and husband threatens that she cannot see her children unless she signs a separation agreement.

RL Any agreement, contract, or deed obtained by oppressing a person by threats regarding the safety or liberty of himself, or his property, or a member of his family so as to deprive him of the free exercise of his will and prevent the mutuality of assent required for a valid contract may be avoided on the grounds of duress.

2. Machinery Hauling, Inc. v. Steel of West Virginia (WV 1989)- Defective steel delivered and company who delivers it threatens not to do business again with the receiving company unless they pay for the steel.

RL Future expectancy is not a legal right on which one can anchor a claim of business/economic duress. Threats to do what the threatening person had a legal right to do (not do business with them again) does not constitute duress. Hard bargaining is not duress.

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E. Undue Influence

*Occurs when force overcomes reason and will.* In situations of Undue Influence exists conduct that approaches coercion but is still not quite duress.*Undue Influence occurs not necessarily because of another’s coercive acts, but because of the diminished state of mind of the one acting against his or her will. In these situations, this person’s diminished state of mind is taken advantage of-persuasion overcomes will.*In these situations there is often a confidential relationship present.* The coercion in undue influence is not an illegal act

Pattern of elements apparent in Undue Influence cases:1) Discussion of the transaction2) Consummation of the transaction in an unusual place3) Insistent demand that the business be finished at once4) Extreme emphasis on untoward consequences of delay5) The use of multiple persuaders by the dominant side against a single servient party6) The absence of third-party advisors to the servient party7) Statements that there is not time to consult financial advisors or attorneys

CASE: Odorizzi v. Bloomfield School District (Cal. 1966)-teacher arrested for homosexual activity. He is coerced into resigning from the school district.

RL A valid contract can be entered into only when there is a meeting of the minds of the parties under circumstances that do not deprive the parties of the exercise of their own free will.

F. Misrepresentation*A misrepresentation is a false assertion of the facts, and is demonstrated by written or spoken words, concealment or non-disclosure*A misrepresentation reaches the level of fraud when a party intentionally acts to mislead another party with an assertion and the party knows or doubt the truth of the assertion*If the information given is invalid but may be found on a routine investigation, this is not a misrepresentation.

*Factors in determining whether a misrepresentation may avoid a contract:1) It was not in accord with the facts2) The information was material (important to the person receiving the information)3) The information was relied upon4) The information was justifiably relied upon5) The misrepresentation provided a detriment

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*DO NOT need to prove that intent to misrepresent existed for the misrepresentation to be actionable.

CASE: Barrer v. Women’s National Bank (DC) 1985-house sold in tax sale, attempts to get it back by securing a loan with a bank, but does not give bank all the information regarding his debts.

G. Mistake

*Where a party has an erroneous belief regarding a contract, a mistake has resulted. A mistake is a belief that is not in accord with the facts.

There are two types of mistakesMutual Mistake §152

1. Both parties have the same erroneous belief2. As to the basic assumption3. The belief is material (if the parties had known otherwise, they

never would have entered into the contract)4. The party claiming avoidance did not assume a risk

*THERE CAN BE NO CONTRACT WITH A MUTUAL MISTAKE!a. Lenawee County Board of Health v. Messerly (MI 1982) –both parties believed they were dealing with an income producing property, but because of sewage problems, it wasnot.

RL A mistake made on a predictive value does not deem a contract enenforceableRL If the agreement includes a provision in which the parties accept the property/performance as is, the agreement must be enforced

Unilateral Mistake (in essence a misunderstanding)1.One party thinks something, the other party thinks something else2. As to the basic assumption3. The belief is material4. The party claiming avoidance did not assume a risk5. The result would be unconscionable

orThe other party knew or caused the misunderstanding

OrThe parties can be restored to their position before the agreement with no damage to the other party

b. Wil-Fred’s Inc. v. Metropolitan Sanitary District of Greater Chicago (IL 1978) – too low of a bid for water reclamation construction job

RL (look at above criteria)

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H. Unconscionability*Not illegal contracts, but getting close*Unconscionability is now disfavored because it is too subjective—a gut instinct type of situation

In an effort to lessen the subjectiveness of unconscionability, courts have begun to use elements of:

1) substantive unconscionability-deals with the actual terms of the contract and

*2) procedural unconscionability-occurs during the process of contract formation (how the transaction was affected)

such as:

*Whether the contract was a standardized contract or form (frequently with fine print)*A take it or leave it situation*No competition for goods or services involved, a limited source with disproportionate power, no meaningful choice*Public welfare*No real bargain or negotiation due to oppressive bargaining situation*Shocking*Cognitive deficiency and or status of victim (physically/mentally handicapped, poor, does not speak the language, education) –things that create a difficult situation for the victim*The nature of goods or services contracted for

If for necessaries, more likely to find unconscionability*No other grounds for avoidance*Unfair surprise

a. Williams v. Walter Thomas Furniture Company (DC 1965)-man sells furniture to welfare mother and provision of sales contract says that if payment for any piece of the furniture is in default, ALL of the furniture is returned.

RL Unconscionability includes an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party

RL Ordinarily when one signs an agreement without full knowledge of its terms they might be held to assume the risk that they have entered into a one-sided bargain.

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b. Albert Merrill School v. Godoy-guy from Puerto Rico signs up for a computer course, does poorly, but is talked into sticking with the class

CHAPTER VIIIIIllegality and Public Policy

RL Illegal bargains are void from the beginningEXCEPTIONS §199:

1) Locus poenitentiae “Time for repentance”*Both parties knowingly enter into an illegal contract and one party has second thoughts and before anything wrong occurs, they go to the authorities

*Must withdraw from the illegal contract voluntarily*Must withdraw at a meaningful time

2) Not in pari delicto “Not equally responsible”

Example: blackmail—victim should be able to get their money back because they were at the mercy of the person trying to make the illegal contract

*3) Enforcement of the contract will serve public policy

4) Non -meretricious relationships

a. Gates v. Rivers Construction Co. (Alaska 1973)- contract made with an illegal alien from Canada. Not enforcing this contract would make people (in the US) continue to try to do business with illegal aliens, thinking that they will not have to pay them

RL Ordinarily a party to an illegal contract cannot recover for a breach of the illegal contract. However, if it would encourage the violation of public policy not to enforce the contract, the contract should be enforced!

b. Cudah Chamber of Commerce v. Quirk (WI 1969)- wager made to Jay Cees to prove that fluoridation is not bad. If can prove, offers to pay $1,000 for promotion of fluoridation

RL Courts will not settle disputes arising from gambling.RL Nor will courts settle disputes regarding public policy/ones that we encourage citizens to debate aboutRL An illegal transaction is void. If a party sues for enforcement they will be left in the position they were found.

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c. Carroll v. Beardon (MT 1963)- sale of house of prostitutionRL Mere knowledge on the lessor’s part that the lessee will use the premises for an unlawful purpose does not make the lessor a participant in that purpose.RL each party to a contract is required to keep her promises and to perform the obligations thereunder

d. Hewitt v. Hewitt (IL 1979)- unmarried couple live together. Woman sues to recover for half of man’s assets.

RL THE IL MARRIAGE AND DISSOLUTION ACT disfavors the grant of mutually enforceable property rights to knowingly unmarried cohabitants. If this were to be enforced, IL courts believe that it would go against the act that encourages people to marry, and instead encourage people to live together unmarried in meretricious relationships.

e. Watts v. Watts (WI 1987)- woman and man cohabitate unmarried, have kids, have joint bank account, and hold themselves out to the public as husband and wife.

RL Wisconsin courts think the IL courts are incorrect. They recognize that if a couple does more than engage in a meretricious relationship, there is other consideration to form the basis of unjust enrichment.

*This idea may actually hold up the idea of the IL marriage act because so many people get into marriages, and find out who the other person really “is” and then divorce. Perhaps if IL allowed couples to cohabitate like husband and wife (but without a license) this would encourage people to live together for a time to get to know each other and then we wouldn’t have so many divorces.

CHAPTER XStatute of Frauds

1. Does the agreement fall within or without the requirements of the SOF?a. Sale of goods $500 or more (U.C.C. 2-201)b. Sale of real estate RL an oral agreement to sell real estate is not bindingc. Cannot be completed within a yeard. One party undertakes the obligation of anothere. Other contracts specified by particular statutes

2. Did the parties intend to have a formal written agreement before the agreement was to be binding/ or was the agreement in writing? §131-137

*Courts are trying to narrow the writing requirement* Does not matter if the writing is executed sometime afterward*the writing does not necessarily have to be the contract!

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*All the parties that claim a contract comes under the S of Fs need to do is prove that there was a writing (even if it was lost or destroyed)*Multiple documents may be considered a writing even if only one is signed (different in different jurisdictions)* A document does not need to have been intended to be the contract

Signatures

* May be a symbol used with the intention to authenticate the contract* Some states require formal signatures

NEW LAW-Federal E-Signatures Act-invalidates any states that require an actual signature

-IL SOFs must be read to include e-signatures. IL can require that something must be in writing and signed, but must allow e-signatures

3. Does the agreement fall under one of the exceptions?1. Full performance (the party has already performed that which was agreed upon)2. Part Performance (the party has performed part of that which was agreed upon to their detriment.

*Must prove expectation and conduct must be clearly traceable3. Promissory Estoppel (the party reasonably relied on the agreement, and if unenforced, they would be damaged)

FOR ALL OF THESE, A LOT OF TRACEABLE EVIDENCE IS REQUIRED!

*Almost every state has the Stature of Frauds*Offers to buy do not need to be in writing*Option contracts MUST be in writing*Restrictive covenants must be in writing*Time: sufficient if the document is made or signed anytime before or after formation of the contract

The Statute of Frauds fulfills the1) Evidentiary purpose2) Faulty memory objective (from old law, believed that after a year, peoples’ memories of contracts were limited

RL An oral agreement is enforceable if capable of being performed in one yearEXAMPLE: If Berendt asks Mulvihill to be his research assistant for a year starting from today, this is enforceable because it is capable of being performed within a year.

However, if he asks her to be a RA starting six months from today, this must be in writing, because it cannot be capable within a year of the creation of the contract

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RL Lifetime employment contracts (IN IL) must be in writing because life determines the capability of the contract being performed in one year (someone could die in a year, and it would be fully performed)

A. McInerney v. Charter Golf, Inc. (IL 1997)-oral agreement for lifetime employment

RL In IL contracts for Lifetime employment must be in writing (minority view)

B. East Piedmont 120 Associates v. Sheppard (GA 1993)-agreement to form joint venture to sell land to a grocer chain. Changes mind, does not want to sell

RL Oral promises to convey interest in land are not enforceable under the SOF.

C. Fischer v. Mann (IL 1987)- Lease application and $500 paid by check, but not cashed, no lease entered into.

RL A breach of a promise which the law does not regard as binding is not fraud and does not justify the doctrine of estoppel (to bar the statute of frauds).

D. Hickey v. Green (MA 1982)- Oral agreement to sell property, then change mind. Party planning to buy sold their home.

RL A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the SOFs if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought has so changed his position that injustice can be avoided only by specific performance (promissory estoppel theory).

E. Reimlong v. Crolla (WY 1978)- Restrictive covenant to bar neighbors from putting mobile homes on neighbor’s property.

RL Although restrictive covenants fall within the SOFs, when a party relies on a restrictive covenant (that is oral) the agreement must be enforced.

F. Skaggs v. Dial (MO 1993)- Parties make an oral agreement for buyer to pay mortgage on a house. Buyer lives there for 20 years and puts substantial work into it. Sellers come back and kick buyer out and change locks and nail doors shut

RL Ordinarily a sale of real estate falls within the Statute of Frauds (must be in writing) however, if a party has acted to such a degree upon the contract that denying the party the benefit of the agreement would be unjust, equity will decree specific performance of the contract.

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