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Contracts
Rutgers University, Newark School of Law
Chen, Ronald K.

Contracts Outline – Dean Chen Fall 2011

(Applicable Law: (1) Common Law – derived from court decisions; service, land lease; (2) Article 2 of UCC – focus of exam (where UCC is different form Common Law…(a)Rule – use common law unless the Sale of Goods(i.e. movable, personal property)

I. Contracts: Definitions and Basic Elements

1. Contract: a promise (i.e. future commitment; executory) or set of promises that the law will enforce in some way. The law will consider whether or not to enforce the promise. For the breach of a contract the law gives a remedy, or the performance of which the law recognizes as a duty. (2RSC (1)) Contract is not synonymous with agreement. (focus on the nature of the offerà it controls the kind of contract you have (not if performance occurred)

Promise: manifestation of intent to act or refrain from acting in a specified way. (2RSC(2))

Types of contracts as to formation

a. Express (promise): stated in words either oral or written. (2RSC(4))

(1) Contract implied in fact

Ex: go into a bar, order a drink, and then pay for drink

(2) Contract implied in law

Ex: sometimes referred to as a quasi contract – contract created by law based on relationship of parties or their actions. Quasi contract is used to prevent unjust enrichment. Based on theory of quantum meruit- as much as he deserves.

b. Implied (law/fact) (promise): inferred wholly or partly from conduct. (2RSC(4))

(Collins v. Lewis – sheriff, P, took away cows in possession of one Kinne. P learned the cows belonged to D and Kinne was holding them under a conditional sale contract. P returned cows but Kinne refuse to take them. P offered to return to D, but D had no room for them. P’s attorney informed D that cows were being kept for him and he would be held for the cost. D sold cows and new purchaser took them. D knew that P expected to get paid from a letter he received. Court held that there was an implied contract that D would pay P the reasonable cost of the care and keep of cows)

c. Quasi-Contract (Implied in Law): not a real contract, no agreement between parties, conduct allows the law to impose recovery where justice requires (e.g. physician gives emergency services to injured pedestrian, services not requested by victim or anyone else – law may allow recovery). Equitable remedy governed by maxims of equity. Not governed by contract law.

Types of Contracts as to Acceptance

a. Unilateral Contract (acceptance by performance): Traditional view -promise in exchange for a performance – the offeror-promisor would promise to pay upon the completion of the act by the promisee, and once the promise was completed a contract was formed; results from an offer that requires performance to accept. Modern view – occurs (1) where the offeror clearly indicates that performance is the only manner of acceptance and the contract would be formed upon completion of the performance; and (2) where there is an offer to the public, such as a reward offer which clearly contemplates performance rather than a promises, that only the performance requested in the offer will manifest acceptance

b. Bilateral Contract (exchange of mutual promises): Traditional view – promise in exchange for a return promise; results from an offer that is open as to how it can be accepted. Modern view – most contracts are bilateral; under UCC and Restatement 2nd, possible to start a bilateral contact by start of performance) The obligation created by part performance is not called an option contract, not a unilateral contact.

Test for determining Bilateral and Unilateral – under traditional view – whether at the time the contract is formed, there are tow rights and two duties (bilateral) or only one right and one duty (unilateral)

c. Option: valid contract even though offer w/o acceptance, instead offeror promises to keep offer open for a certain period of time. Requirement to be binding: (1) offer is in writing and signed by offeror; (2) recites a necessary consideration; (3) proposes an exchange on fair terms within a reasonable period of time. (2RSC87(1)(a)) An offer is reasonably expected to induce action /forbearance of substantial character. (2RSC87(2))

2. Bargain: manifestation of mutual assent to an exchange (promise for return promise or performance (P/RP)). P/RP must be sought by promisor in exchange for his promise and given by promisee in exchange for that promise (i.e. mutual inducement). (2RSC71(2))

3. Manifestation of mutual assent: generally offer and acceptance. Requires each party either make a promise or begin or render a performance. (2RSC(18))

4. Types of contracts as to validity

a. Void Contract – one that is totally without any legal effect from the beginning (e.g agreement to commit a crime) (is not enforceable as it stands)

b. Voidable Contract – one that one or both parties may elect to avoid or to ratify (e.g. contracts of infants or mentally ill parties)(can be made enforceable)

c. Unenforceable Contract – agreement otherwise valid, but that may not be enforeceable dues to various defect extraneous to contract formation, such as the statute of limitations or statute of frauds.

II. Enforcing Promise

1. Formality (note: consideration may have both a formal and substantive aspect)

a. The evidentiary function – evidence of the existence and conveyance of the contract; satisfied in a variety of ways: requiring a writing, certification of a notary

b. The cautionary function – formality may perform a cautionary or deterrent function by acting as a check against inconsiderate action; the seal performed this purpose well, now – notariztion

c. The Channeling function – form offers a legal framework into which the party may fit his actions, or, to change the figure, it offers channels for the legally effective expression of intention.

Reference Case

Congregation kadimah Toras-Moshe v. Deleo (Formality) (an oral promise was not made to induce any return action or forbearance)

P, congregation, sought to enforce a decedent’s oral promise –D, executor. Rule: an oral promise to donate money is unenforceable. A gratuitous promise to do or give something to another, without any benefit accruing to the promisor, lacks the element of consideration and therefore, no contract has been entered. In this case, the mere incorporation of the $25,000 into t

ge in. This abstention is sufficient to be valuable consideration. P has right to full payment.

d. Adequacy of Consideration

Generally: peppercorn theory, ordinarily courts do not inquire into adequacy of consideration. Valuation is left to private parties, something as trifling in value as a peppercorn could serve as consideration for a bargain. (note: gross inadequacy may be relevant to issues capacity (i.e. fraud), consideration required no safeguard against imprudent contracts except cases where appears no bargain in fact)

(mixed motive: altruism (not necessarily enforceable…the offer sometimes is considered a gift) or motivations of exchange)

Rule: Adequacy of Consideration; Mutuality of Obligation (2RSC(79)) – pg 214

If requirement for consideration is met, there is no additional requirement of:

i. benefit to promisor, or detriment to promisee

ii. equivalence in the values exchanged

iii. mutuality of obligation

Mere inadequacy of consideration will not void a contract.

Settlement of Claims (2RSC(74)) – pg. 224

(1) forebearacne to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless

a. the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

b. the forbearing or surrendering party believes that the claim to defense may be fairly determined to be valid

(2) the execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

Reference Cases:

Fischer v. Union Trust Co. (Exchange through Bargain)

Fischer deeded realty to his daughter (P) agreeing to pay off the mortgages on the property. He failed to do so, and she sued his administrator (D). Rule: mere love and affection do not constitute sufficient consideration to compel performance of an entirely executory contract. Although P paid her father the sum of $1, it is obvious that the grantor’s motivation for the conveyance was his love for P. Fisher’s feelings and P’s payment of $1 were not adequate consideration. Judgment for Bertha was reversed.

Nominal consideration – consideration that is so insignificant that it does not represent the actual value received fro the agreement.

Peppercorn – a piece of dried pepper that was used to indicate the payment of nominal rent on a lease under English Law.