Contracts I
Professor Ford
Fall 2010
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Contracts Outline
1. CONTRACT BASICS
§ 1 Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
§ 4 How a Promise May be Made
A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
It is the responsibility of the party that is going to sign a contract to read and understand the contract first. (Morales v. Sun Constructions, interpreter provided, but did not cover arbitration clause – still it was Morales’s responsibility to understand the contract, get it translated himself etc.)
Contract
Offer-
Acceptance-
Consideration- (Steinberg v. Chicago Medical School IL 1977, application fee of $15 can be consideration)
2. CHOICE OF LAW
§ 64 Acceptance by Telephone or Teletype
Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.
Palmer v. Beverly Enterprises CA 1987– (IL resident moves to CA for job with understanding that the relocation expenses will be paid for, and the house in IL if not sold)
-Choice of venue –(must follow conflict of laws rules prevailing in the states in which they sit) most significant contact rule – place of contracting, negotiating, performance, location of subject.
3. THE COMMON LAW VERSES ARTICLE 2 OF THE U.C.C
U.C.C § 2-102 – Scope; Certain Security and Other Transactions Excluded From This Article
Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
-Only applies to goods.
-”bonebrake test” – predominant factor test – relative cost between the goods and services.
In BMC Indus. v. Barth indus. 1998 (did not finish the project within the time called for in the contract) (court applied bonebrake test – predominantly goods – ucc calls for ‘reasonable amount of time’)
4. MUTUAL ASSENT
§ 17 Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules state in §§ 82-94
Specht v. Netscape Communs. Corp 2002 (hidden license agreement on click through agreement to install software) – no mutual assent because a reasonable internet user would not have found the agreement
IT IS NOT OBVIOUS THAT ARTICLE 2 OF THE U.C.C APPLIES TO THE LICENSING OF SOFTWARE THAT IS DOWNLOADED FROM THE INTERNET
It is the responsibility of the party that is going to sign the contract to read and understand it(Schillachi v. Flying Dutchman Motorcycle club 1990 PA(waiver for racing track))
Even if the contract is in a different language(Morales v. Sun Constructors 2008 Virgin Islands – interpreter not provided explaining arbitration clause)
However, if it is not legible, then there is no mutual assent and no contract (Amer. Building Supply Crp. v. Frazier Builders Corp. NY 2002 – personal guarantee of contract not legible)
5. CONSIDERATION
§ 17 Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules state in §§ 82-94
§ 19 (rule + comment a) Conduct as Manifestation of Assent
(1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
(2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other paty may infer from his conduct that he assents.
(3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause
§ 71 (a, b, and d) Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
§ 72 (a + d) Exchange of Promise for Performance
Except as stated in §§ 73 and 74, any performance which is bargained for is consideration.
§ 73 (a) Performance of Legal Duty
Performance of a legal duty owed to a promisor which neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
There is consideration existing when “the promise must induce the detriment and the detriment must induce the promise” or in other words “mutual beneficial to both parties” (Pennsy Supply, Inc. v. American Ash Recycling Corp. of PA PA 2005 there was value in the agreement to American Ash that they did not have to ay to dispose of the aggregate they gave to Pennsy-
If part of consideration is to do an immoral or illegal thing, there can still be consideration (in this case there was a statute against it, which made it unenforceable (Samples v. Monroe GA 1987 – sex in a unmarried relationship)
§ 79 (a,c,d,e) Adequacy of Consideration; Mutual
Yahoo!
No consideration, but action performed to the detriment of the promisee. Greiner v. Greiner KA 1930– son moved his family to where 80 acres of land was located on promise of the land.
Reliance by retiring early. Feinberg v. Pfeiffer Co. (promised $200/month, problem with wording – reward for PAST work) but since the relied by retiring early, court enforced promise)
Promissory estoppel can be used as a cause of action in IL Newton Tractor Sales, Inc. v. Kubota Tractor Corp. IL 2009 – verbal agreement to keep selling farm equipment – P claiming promissory estoppel – recognized as a cause of action in IL
When there is a donation, might still be a requirement that the promise induce an action or forbearance. – Coretta Scott King v. Trustees of Boston University. MA 1994 – papers of martin luther king donated to BU – court said not enough evidence of reliance for consideration. RESTATEMENT different- says donations just need the promise.
9. ILLUSORY PROMISES
§ 76 (a,b,c,d) Conditional Promise
(1) A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur
(2) A promise conditional on a performance by the promisor is a promise of alternative performances within § 77 unless occurrence of the condition is also promised.
§ 77 (a,b) Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or
appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
There can be consideration for a contract where the consideration is a promise conditional upon satisfaction (if the dissatisfaction is genuine) Mattei v. Hopper CA 1958 – agreement to buy adjacent plot of land conditional upon them leasing enough mall spaces.
Consideration for the entire contract or just part of it. If the arbitration agreement is on a separate contract where one party never has to follow the agreement then its an illusory promise Vassilkovska v. Woodfield Nissan, Inc. IL 2005 – agreement for car purchase
10. MORAL OBLIGATION AND PAST CONSIDERATION
§ 86 (a,b) Promise for Benefit Received
