Patterson Jumpstart Summer 2014
Contracts Outline
Thursday, July 10, 2014
10:46 PM
contract- 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 (Restatement (Second) §1).
K = Promise/Breach/Remedy K = enforceable promise
v – an agreement btwn 2 or more persons ; a common understanding as to something that is to be done in the future by one or both of them.
– Refers to an agreement that has legal effects: creates obligation for which some sort of legal enforcement will be available if performance is not forthcoming as promised.
promise – §2-1 – a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.
v promise v. gift
– gift requires intent and delivery
Feldman v. Google Inc. United States District Court
513 F. Supp. 2d 229 (E.D. Pa. 2007)
remedy is what you get when a promise is enforceable.
– remedy is the value of the promise.
breach = failure to perform as promised
Job of remedy is to put non-breaching party in as good a position had the k been performed
– Feldman v. Google Inc.
-Forum selection clause is enforceable
-adwords agreement = express k
-reasonable notice of terms and conditions
-duty to read
The Basis of Contractual Obligation: Mutual Assent and Consideration
Contract = Promise + Consideration
+ Detrimental Reliance / Promissory Estoppel §90
+ Material Benefit §86
Mutual Assent
– §17 Requirement of Bargain
○ formation of contract requires bargain with manifestation of mutual assent to the exchange and consideration
○ exceptions §§82-94
– §20 Effects of Misunderstanding
○ deals with meeting of the minds regarding meanings of the contract terms
– §21 Intention to Be Legally Bound
○ Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract
○ Ray v. William G. Eurice & Bros., Inc.
Dispute over specifications
Meeting of the minds- the wills come together: without such there is no k= failure of formation
– §24 Offer Defined
– §25 Option Contracts
– §26 Preliminary Negotiations
○ Lonergan v. Scolnick
○ advertisement is not an offer, but only an invitation for a offer
– mailbox rule
○ dispatch of acceptance to an offer is valid and creates a contract
Revocation of an offer must be communicated
– first in time & first in writing
○ first of the 2 valid contracts enforced through specific performance, 2nd gets money damages if the party enforcement is sought against is at fault
– distinction between preliminary negotiations/providing info/invitation for an offer and actual offer
○ “Offer” is manifestation of willingness to enter into a bargain
– Counter Offer
○ §39 Counter Offer defined
○ §59 Purported Acceptance Which Adds Qualifications
§ acceptance to an offer but conditional on offeror’s assent to additional/different terms = counteroffer
○ Normile v. Miller
§ offer, counteroffer, sale to 3rd party, revocation (indirect communication of )
§ Never a k unless/until one of the parties accepts an offer AS MADE
§ An act inconsistent with the offer is revocation
§ Offeror revokes offer- destroying power to be bound
§ Offer may be revoked- terminates power of acceptance; must be communicated
Power of acceptance Master of the bargain
– Unilateral Contracts
○ §32 Invitation of Promise or Performance
§ In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses
○ §45 Option Contract Created by Part Performance or Tender
§ see text
§ when offeree tenders or begins performance in unilateral contract, offeror loses power to revoke his offer as long as the offeree completes performance
□ consider offer to pay if offeree climbs up a flag pole
*OPTION CONTRACT- right but not obligation to buy sth at a certain price at a certain time
○ mutuality of obligation
§ The agreement of both parties to a contract to be bound in some way
§ In bilateral contract, usually means ‘both parties must be bound or neither is bound’
§ In unilateral contract, it does not apply
BILATERAL V. UNILATERAL K
-bilateral- mutual promises
-unilateral- an offer inviting acceptance by performance
Problems with unilateral contracts- Offeror is the master
Section 45:
Offeree has the option to decide whether or not to continue the performance
○ Offeree is not obligated to perform
○ And can also stop during the performance without being responsible for money damages
– Agreement to Agree
○ §21 Intention to Be Legally Bound
○ §27 Existence of Contract Where Written Memorial is Contemplated
§ if there’s manifestation of assent, even if they intend to put it in writing, there’s a contract
§ BUT, the circumstances may show that the agreements are preliminary negotiations
○ Quake Construction v. American Airlines
§ gross ambiguity in the Letter of Intent – could be interpreted as both preliminary
Laches
§
§
Consideration
negotiations and binding agreement
Ambiguous whether parties intended to be bound
– “you snooze, you loose”
– Equitably estopped from exercising power of acceptance
– Definition
○ §71 Requirement of Exchange; Types of Exchange
§ return promise or performance must be bargained for
§ performance may be
○ an act other than promise
○ forbearance
○ creation, modification, or destruction of legal relation
§ performance or return promise may be assigned delegated
§ attempts to distinguish contractual promise from gifts
○ Hamer v. Sidway
§
§
§
§
§
– Application
contract v. gift? (see also Pennsy v. Amercian Ash)
Conditional gift?
smoking/drinking nephew and promise of money by uncle
but was there bargaining?
Benefit detriment test
Benefit-detriment test
Gift v promise
Gifts: absolute or conditional
○ Dougherty v. Salt
§ contractual promise v. gift?
§ aunt writes a note promising money because nephew’s been a good boy – had recital of consideration
§ note had the form of consideration by reciting it, but no substance of consideration
§ nothing is consideration that is not regarded as such by both parties
CONSIDERATION
Big Picture:
71, 86, 90
○ § 71 comment b
○ “Moreover, a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal.”
○ Offeree accepting the offer knowing that the consideration given is mere pretense does not constitute consideration for future promise
Formation under UCC 2-204
2-207
§ also consider material benefit rule § 86
– § 79 Adequacy of Consideration; Mutuality of Obligation
§ mere inadequacy of consideration will not void a contract; is not a valid defense
§ If the requirement of consideration is met, there is no additional requirement of
Need consideration to make a promise enforceable (k)
a. a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promise; or
b. equivalence in the values exchanged; or
c. “mutuality of obligation”
§ comment e
Consideration substitution
– Promissory estoppel- eats away at consideration req.
○ gross inadequacy of consideration may be relevant in other issues ,such as fraud, mistake, lack of capacity, duress or undue influence
– Independent basis for finding enforceability of
promises
§ Batsakis v. Demotis
○ WW II loan in Greek currency
– Detrimental reliance- promisor engenders change
of reliance
○ Past consideration (executed consideration) is no consideration
– any other change in behavior of promisee-
§
Promise
○ The principle of this Section is flexible. The promisor is affected only by reliance which he does
or should foresee, and enforcement must be necessary to avoid injustice. Satisfaction of the latter requirement may depend on the reasonableness of the promisee’s reliance, on its definite and substantial character in relation to the remedy sought, on the formality with which the promise is made, on the extent to which is evidentiary, cautionary, deterrent and channeling functions of forms are met by the commercial setting or otherwise, and on the extent to which such other policies as the enforcement of bargains and the prevention of unjust enrichment are relevant…
– Reliance
– No consideration (mere gratuity)
– Therefore, promise of land cannot be enforced
King (CONSIDERATION MODEL)
○ suggests generally that whether a promise should be enforced may depend in part on “the extent to which the evidentiary, cautionary, deterrent and channeling functions of forms are met”
– “axns of BU…went beyond obligations assumed as a bailee… and
constituted reliance or consideration . . . ”
– The essential justification for the promissory estoppel doctrine is to avoid substantial hardship or injustice which would result if such a promise were not enforced. – p.269
– most courts do not follow §90(2), although they are generally sympathetic to charities, unless it goes completely against established contract law principles
○ However- not really consideration (under §71, as there is no
bargaining)
– Example of promissory reliance
– Reliance is easier to find than consideration
Ø Reliance must be to their detriment
○ King v. Trustees of BU
§ held that there were both consideration and detrimental reliance in exchange for Dr. King’s promise of charitable subscription
Holding: The letter could have been read to contain a promise supported by
consideration or reliance… (224)
□ Patterson believes finding of consideration is a bit shaky
4 theories for suit:
– 3 Elements to invoke Doctrine of Promissory Estoppel • K
1. a promise
2. a detrimental reliance on such promise
3. injustice can be avoided only by enforcement of the promise
– when is reliance detrimental?
• Charitable pledge
• SOL
• Laches (an equitable doctrine) slept on rights too long, and now bc of that you will be denied power to sue
○ “action and forbearance”
– Pops Cones v. Resorts International
○ strict adherence to requirement of “clear and definite” promise is being eroded by §90 and recent cases in more equitable analysis designed to avoid injustice
○ P was not seeking enforcement of the promise (no clear and definite promise), but was seeking damages resulting from his reliance on D’s assurances
○ reliance damages vs. expectation damages
○ Patterson: negligence/tort case in substance hidden in contract case
§ because there is no real promise
§ what §90 case looks like
§ D acted negligently in negotiating with P
Distinction between consideration or reliance
NOW- charitable pledge is handled under §90 (2)
Conversion- wrongful possession of another’s property as if it were one’s own Deprivation of personal property- of the owner
Bailment – common law obligation = take care of it –
Temporary transfer of possession
laches – 1. Unreasonable
