CONTRACTS II (Spring 2011)
Prof Nye
I. LEGAL ISSUES AND BUSINESS POLICY
A. Introduction
a. a strong policy behind requiring parties to honor their promises will be the need for predictability of enforcement of those obligations
b. Ways to determine whether parties intend to be bound —
1. Whether a party expressly reserved the right to be bound only when a written agreement is signed
2. Whether there was any partial performance by one party that the party disclaiming the contract accepted
3. Whether all essential terms of the alleged contract had been agreed upon
4. Whether the complexity or magnitude of the transaction was such that a formal executed writing would normally be expected
Once a contract is determined to exist. The next thing to do is to determine what are the terms. There are general rules of construction applied by courts to interpret contracts
– Contract is construed as a whole. (Specific clauses surbodinated to general intent)
– Ordinary meanings of words unless it clearly shows that it was meant to be used in a technical sense.
– Inconsistency between provisions. Written or typed provisions prevail over printed provisions
– Custom and usage of particular business (UCC Sec 1-303)
– Preference to construe contract as valid and enforceable
– Ambiguities construed against party preparing contract.
B. Philosophy of contract enforcement
a. RULE: Classic view – It is the consent and agreement of individual parties (notion of liberty and individual free will)
b. RULE: Breach of contract remedies can include both contract and tort principles (like awarding pain and suffering) Sullivan v. O’ Connor (Woman had surgery that went wrong) Recovery for pain and suffering in a breach of contract is simply not compesable because it is not reasonably foreseeable. However there is no bar to seeking damages for such items.
– Non breaching part can be compensated for lost expectancy, putting them in a good position as if the contract had been fully performed
– Costs incurred for reliance on the promise/contract
– Restitution of any benefits received under the contract to avoid unjust enrichment.
c. RULE: Relying on one’s promise to his own detriment, can make recovery possible. A promise is a manifestation of intention to act or refrain from a certain way, so made as to justify a promise in understanding that a commitment has been made.
d. RULE: There is a presumption a contract is enforceable
e. RULE: Where there is a bargaining and effective exchange of consideration, a contract has been formed Anthony v. Yahoo (False dating ads)
– Elements of a breach of contract:
– Existence of a contract
– Performance by plaintiff or excuse of non performance
– Breach by defendant and damages
People v. Starks: Prosecutors office made agreement with D to take polygraph test and case dismissed if he passed test. Court held that although Prosecution made unwise choices, they were still bound by their promise.
C. Relationship of contract law to social policy
a. RULE: The 1st amendment does not prohibit recovery of damages under contract law where a general statement that is intended to guide conduct, is derived from an authoritative source, and is applied by gov’t officials Cohen v. Cowles (media did not keep its promise of confidentiality)
b. RULE: If parties do not intend to be bound to an agreement until it is reduced to writing and signed by both parties, then there is no contract until that event occurs Texaco v Penzoil (companies seeking to merge in conflict over whether cont
likelihood that a refusal to enforce the term will further that policy
(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and
(d) the directness of the connection between that misconduct and the term
II. INTERPRETATON OF AGREEMENTS
A. Introduction
a. before a court can enforce the contractual obligations between parties, it must determine the precise terms of the agreement between the parties
b. court must decide what documents and what oral discussions from the actual contract between the parties
c. to do this, the court must decide to what extent, if any, it will consider extrinsic evidence such as prior negotiations or customs in the industry to determine the parties’ intent
Mitchell v. Lath: The Mitchells (Plaintiffs) brought an action against the Laths (Defendants) to enforce an oral agreement to remove an icehouse from property purchased from the Defendants. Defendants appealed from judgment granted in favor of Plaintiffs.
Rules:
An oral agreement is not collateral to the written agreement if its subject is closely related to the subject of the written agreement
Before an oral agreement is received to vary the written contract, at least 3 conditions must exist:
1. The agreement must be in collateral form (different consideration)
2. It must not contradict express or implied provisions of the written contract
3. It must be one that parties would not ordinarily expect to embody in writing
