Contracts – Professor Mark –Fall 2009
9th edition of Dawson, Harvey, Henderson & Baird, Contracts: Cases & Comment
Table of Contents
What is a contract?. 2
Bargained for exchange/adequacy of consideration.. 3
Promises Grounded in the Past. 4
Reliance on a PromisE.. 5
Precontractual Obligation/options. 8
When (and How) Promises Become Enforceable.. 10
Mutual Assent. 10
Offer and Acceptance.. 11
Limited and Indefinite Promises. 14
Identifying the Bargain.. 16
Contracts Without Bargaining.. 16
The Effects of Adopting a Writing/parol evidence.. 18
Interpreting the Promise.. 20
Remedies For Breach Of Contract. 21
The Goals of Contracts Damages. 21
Limitations on Damages. 24
Contractual Controls on the Damage Remedy.. 29
Enforcement in Equity.. 29
Mistake, Misrepresentation, Warranty and Nondisclosure.. 31
Changed Circumstances Justifying Nonperformance.. 34
Policing the Bargain.. 35
Competency to Contract. 35
Duress and Coercive Renegotiation.. 36
Standardized Terms, Unconscionable, Inequality, and Good Faith.. 37
What is a contract?
· Rest. 2d Contr. § 1 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.
Hawkins v. McGee – Supreme Court of new Hampshire, 1929
· PL was promised a 100% good hand by DF after surgery. Court held that the promise was an enforceable contract since it induced the PL to have the surgery.
· Damages determined by: Restitution (based on any articles/studies published; reliance (measured by the difference between hand before and after – the boy needed a 100% perfect hand to function); expectation (the measure between what he got and what was promised – he expected 100% perfect)
· Definition: A legal detriment
· Requirement of consideration:REST 2d CONTR § 71
o (1) To constitute consideration, a performance or a return promise must be bargained for.
o (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.
o (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.
o (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. (This means you cannot bargain with yourself!)
Congregation Kadimah Toras-Moshe (Plaintiff and Appellant) v. DeLeo (Defendant and Appellee) – Supreme Court of Massachusetts, 1989
· After being visited many times by PL the DF promised to give the DF $25k when he died, which DF didn’t do. PL didn’t rely on the promise in any substantial way and there was no consideration for DF’s promise. Therefore, the promise made to the Plaintiff is unsupported by consideration or reliance and to enforce the gratuitous pledge would be against public policy. There are public policy issues about enforcing death bed promises. (Note: reduce it to writing!)
o Example: Name on a building for a donation of $1M hypo – this would be a promise for a promise and promise and a promise can’t be argued as a contract
· Pitts v. McGraw-Edison Co., 1964 (Two gifts vs. a bargained for exchange)
o Where both parties’ actions are voluntary and terminable at will, there is no contract. Both parties must understand that their actions or promises are consideration for the other act or promise, otherwise it may be seen as two separate promises or gifts.
· Coletta v. Bayshore Yacht & Tennis Club condominium Ass’n, Inc. – FL Bankruptcy Court, 2006
o No consideration found when DF promised to add elevator service to the top floor, when PL purchased condo knowing it had to elevator service.
Bargained for exchange/adequacy of consideration
· Courts can exercise their equitable rights where the law may not apply
o Courts of equity don’t have juries
o Certain land transfers fall into equitable jurisdiction
· Nominal consideration – Not worth considering (insufficient consideration). In a court of law you either have consideration or you don’t.
· Meritorious consideration – Overlaps insufficient, but adds a moral component. Only in court of equity. People generally don’t hand over something worth nothing for something worth a lot.
· Forbearance: The court doesn’t like forbearance of suing others as consideration as it goes against public policy
o 2 part test regarding forbearance:
§ Good faith
§ Foundation for forbearance
· ADEQUACY OF CONSIDERATION. Rest. 2d CONTR § 79
o If the requirement of consideration is met, there is no additional requirement of a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or b) equivalence in the values exchanged; or (c) “mutuality of obligation.”
Hamer v. Sidway – Court of Appeals New York, 1891
· William E. Story 2nd (Promisee) was promised by his uncle William E. Story Sr. (Promissor) that if he abstained from drinking, smoking and gambling until he was 21, that the uncle would give him $5,000 ($1M in today’s money). Although the Promisor didn’t get any direct benefit from the contract, from the oral agreement and the letter written it is implied that he was satisfied and did benefit on some level knowing that his nephew had made good choices and was healthier for them. Promisee fulfilled his end of the bargain waived legal rights and that constitutes consideration
· Earle v. Angell – Massachusetts, 1892
o Promise by decedent to pay PL $500 if he attended her funeral. Consideration was found because PL performed the act and therefore DF must keep other end of the bargain.
· Whitten v Greeley-Shaw – Maine, 1987
o Consideration must be sought after by the party that is supposed to receive it, to constitute adequate consideration. Since DF drafted the document including a clause that she couldn’t call PLs house, it is not seen as bargained for consideration.
Denney v. Reppert – Court of Appeals Kentucky, 1968
· After bank robbers were apprehended several people sought the standing reward offered by the bank. The court held that the only people eligible would be the people who weren’t acting within the scope of their job (tellers/police). The act of helping was the consideration.
· Board of Comm’rs of Montgomery County v. Johnson – OK, 1928
o Fugitive caught by 4 people. Only people that were not acting within the scope of their job should receive the reward.
· Estate of Lord v. Lord, 1979
o PL promised estate to DF if he married her, but left nearly everything to her sister. Court held that he did the duties he was required to do as a husband and that the oral agreement is void as to public policy. Consideration for a contract cannot be something that a person is already required to do.
Fisher v. Union Trust Co. – Supreme Court of Michigan, 1904
· PL was given the deed to property by her father with a promise that the mortgage would be paid off. When he died, it wasn’t paid off. The court held that the fathers love and $1 (joke) was not sufficient consideration
· Sharon v. Sharon – CA 1885
o Contract to leave DF alone for $250/month. Court found consideration since the agreement was between two strangers. (Someone who you don’t have a legally recognizable relationship)
Duncan v. Black – Court of Appeals of Missouri, 1959
· In 1954 the Defendant contracted with the Plaintiff to sell him 359 acres of farmland along with a 65 acre cotton allotment. The allotment was done each year by the government, so should not/could not be conveyed. For the contract to include the promise to a 65 acre allotment goes against public policy as the party responsible for any allotment is the state and the state is the one that can forgive it. T
reliance by the promisee
§ Of a substantial nature
§ Where injustice can only be avoided by the enforcement of the promise
o Amount of award:
§ Promisee should not be in a better position, but in the position they would be in if the promise had been kept.
o The Statute of Frauds
§ requires that certain contracts, including contracts where the terms can’t be completed in one year, must be evidenced in writing.
Since the Statute of Frauds was enacted 200+ years prior to the doctrine of promissory estoppel, it will trump the common law
Prevents use of the excuse that there was no consideration.
· Equitable Estoppel
o Definition: A defensive doctrine preventing one party from taking unfair advantage of another when, through false language or conduct, the person to be estopped has induced another person to act in a certain way, with the result that the other person has been injured in some way.
o A fraud is sufficient to grant an equitable estoppel
· Waiver: A voluntary and intentional relinquishment of a known right
o 3 factors for a waiver to be found:
§ 1. Promise made
§ 2. Which promisee relied on to his detriment
§ 3. In view of detrimental reliance, justice must require an enforcement of waiver
o Common law allows for an implicit waiver
o Akin to promissory estoppel
· REST 2d CONTR § 90 “Promise Reasonably Inducing Action or Forbearance”
o (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
· REST 2D CONTR § 178 “WHEN A TERM IS UNENFORCEABLE ON GROUNDS OF PUBLIC POLICY”
o (1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.
Seavey v. Drake – Supreme Court of New Hampshire, 1882
· Decedent promised tract of land to PL, but did not transfer the deed. PL built a house and barn on the land and paid taxes ($3k). Statute of frauds requires a written agreement, but Court of Equity will look past that to find out what the fair solution should be. Possession of the land plus improvements constitutes consideration. There was reliance on the promise to convey the land and much labor and money went into the property based on this reliance. Court finds that it is a parol gift.
Kirksey v. Kirksey – Supreme Court of Alabama, 1845
· PL was promised a place to live and land to farm to move 60-70 miles away with her family. DF provided this for a while, but after a few years made her leave. Loss and inconvenience the Plaintiff sustained for leaving her old property and moving is not sufficient consideration for the Defendants promise to give her a place to raise her family. His promise is seen as gratuitous and more of a gift than an exchange. (He doesn’t get anything out the deal except for feeling good about helping her out)