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Contracts
Rutgers University, Newark School of Law
Hyman, Jonathan M.

CONTRACTS

HYMAN

FALL 2011

Contract- a promise or set of promises for the breach of which the law gives a remedy or performance of which the law in some way recognizes as a duty

v Lucy v Zehmer

o Zehmer’s sign contract while drunk believing it was a joke. They spoke for 40 min, rewrote the contract. Zehmer never expressed he thought it was a joke until the end.

§ Court says that they look at the outward expression of person manifesting intention

§ Objective theory of Contracts- bindingness of a promise depends on the reasonable understanding of the promise rather than subjective intent.

§ Lucy got specific performance- LAND IS UNIQUE so only way to receive remedy.

o Terms

§ Expectation interest- neither party has changed positions in a substantial way (expectation of parties executing contract)

§ Reliance interest- one party invests time or money (Lucy hired an attorney to evaluate land)

§ Restitution interest- material enrichment given in exchange for a promise.

v NIPSCO v Carbon County Coal

o NIPSCO and CCC had agreement to buy coal at $24-44. Price escalated up to $44. NIPSCO was not allowed to pass increase in price onto their customers and tried to use FORCE MAJEURE clause and doctrine of frustration to get out of contract. NIPSCO lost and CCC wanted Specific Performance (acting out contract- not $ damages)

§ Court says that force majeure clause (allows one party to get out of contract if certain things happen) can’t be enforced because they weren’t mandated to do something, they just wanted a way out because they took a risk when signing the contract and they lost.

§ Escape clauses such as force majure are only applicable in the most extreme cases, and in the event of circumstances that either party could not have contemplated at the contracts formation.

§ Specific performance was denied because they could not show that damages were no sufficient.

Chapter 2 – The Bargain Theory of Contract

v Consideration

o Consideration is necessary for contracts to be enforceable (EXCHANGE)

§ The exchange must be bargained for

§ A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is give by promise in exchange

§ Acts that count as consideration:

· An act other than promise

· Forbearance

· Creation, modification, or destruction of a legal relation

o Reference for Authority

§ Restatement 2d §71 (principles of consideration)

§ F&W p 34

§ Restatement 2d § 87 (principles of consideration for an options contract

§ Restatement 2d §§72-81 (acceptable and unacceptable forms of exchanges

§ Restatement 2d §86 (moral consideration)

o Hamer v Sidway

§ Uncle William tells Willie if he doesn’t drink he’ll give him $5,000, Willie doesn’t drink and wants his money

· Court says that forbearance and detriment can serve as consideration. Willie gave up his legal right to do something and therefore that serves as consideration for the promise.

· Consideration/exchange

§ Notes:

· Fiege v Boehm- forbearance of a good faith law suit can serve as forbearance

o Lakeland Employment Group of Akron LLC v Columber

§ Columber signs non-compete agreement and says that it’s not enforceable because no consideration on LakeLand because they didn’t offer anything to the contract

· Court says that subsequent employment alone can serve as consideration for an at-will employee. (Forbearance on part of employer from firing – gave up legal right to fire)

· Employment at-will

o Fige v Boehm

§ Boehm believed in good faith that Fiege was the father of the child. They signed an agreement saying she wouldn’t file bastardy charges against him if he paid. Find out child isn’t his and stops paying.

· Trial court found that this was a binding contract- forbearing to sue for a good faith lawful claim is sufficient as consideration.

o Petroleum Refractionating corp v Kendrick Oil Co

§ PRC received order from Kendrick for oil for 45 cents a barrel of 35 grade. Order said they could stop shipping if they discontinued making oil. Kendrick cancelled after accepting some saying it was wrong kind. PRC sold rest at lower price and sued for difference.

· Court says there is consideration in this contract because in exchange for Kendrick buying the oil, PRC would make it and sell it to them. (Their oil production was the consideration)

o PRC Conditional out of contract was that they could stop producing the oil- that was a detriment to them and was consideration.

o Illusory promises

§ Notes

· Illusory Promises- words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise (CAN NOT SERVE AS CONSIDERATION)

· Output contract- seller agreed to sell all such goods as he should manufacture during a specified period to a buyer

· Requirements contract- buyer agrees to buy all its requirements from a seller.

o Harrington v Taylor

§ Woman about to hit husband with an axe when Harrington sticks hand in the way. Afterwards Taylor promised to pay and didn’t

· Court said that this was a voluntary act, unbargained for, and the “consideration” was made after the act.

· Past consideration/moral consideration

§ Notes

· Moral Consideration- if the promisor acts from strong sense fo duty toward the promise

o Restatement 2d §86

o Webb v McGowin- man saves guys life but lifesaver left crippled, man agrees to pay and dies, estate doesn’t pay, court says moral consideration can enforce it. “Promise is binding to the extent necessary to prevent injustice”

· Past consideration – if the promisor is seeking to recompense the promise for a benefit previous conferred

o Board of Control of Eastern Michigan University v Burgess

§ Burgess and EMU sign agreement saying EMU had 60 day option to purchase Burgess home. Document signed and says “given 1 dollar and other consideration” but Burgess never received it. The day before deal expired Burgess revoked the offer. EMU says breach of contract

· Court says that acknowledgement of consideration (without actually receiving it) does not bar someone from revoking offer.

· Since there was no consideration- the contract for keeping the option open is not binding.

· Nominal consideration

§ Notes

· Pseudo bargains-

· Nominal Consideration must actually be tendered in order to be consideration

· Firm Offer- UCC § 2-205- an offer by a merchant to buy or sell goods in a signed writing is valid for a reasonable time (not to exceed 3 months)

· Restatement 2d §87 (1)(a) makes an option binding if it “is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time”

o Fisher v Jackson

§ Fisher pursues job from paper- oral agreement that says he has “permanent” employment. He quit his job, and took a salary cut.

· Court says that this is not a binding contract- permanent employment means at-will employment.

· His salary cut and quitting his job were both detriments, but they were NOT bargained for and therefore can not serve as consideration.

· If something NEEDS to be done in order to do something it can’t serve as consideration

· Incidental consideration

v Reliance

o Contract can be enforceable without consideration if a party is injured as a result

o Promissory estoppel

§ Precursor to modern reliance

§ Promises that lack consideration can still be enforced if they result in injustice

o Elements of Detrimental Reliance:

§ Must be promise

§ Foreseeability that promisee will rely on the promise

§ Actual reliance

§ Injustice absent enforcement

· Relianc

get good credit and therefore has to pay higher price. She says breach of contract

· Court said that that the AD was not an offer, just a general invitation to the public to bargain. She did not qualify for financing and therefore was her fault.

· When is an ad an offer?

§ Notes

· Offer- the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it

· Promise- a manifestation of intention to act or refrain from acting in a specified way, so made as to justify promise in understanding that a commitment has been made.

· Deceptive advertising- Lefkowitz- first one in store gets this 150 dollar pin at $1. They refused to sell it at the advertised price to 1st person and lots the suit.

o Davis v Satrom

§ Davis and satrom negotiating back and forth-send forms back and forth with differing terms. (this happens over and over)

· Court says that this is not an enforceable contract because there was no meeting of the minds. By sending the contract back (even if its signed) with new terms it is a counter offer.

· Mirror image rule

§ Notes

· When an offer terminates (res §§40 …)

o If the offeree rejects the offer or makes a counter offer

o At the time specified in contract or failing that, at the end of a reasonable time after the offer is made (Res. § 41)

o If the offeror revokes the offer (res. § 42)

o If either the offeror or the offeree dies or becomes incapacitated (res. § 48)

o If the terms of the offer include a condition for acceptance and the conditional fails to occur.

· Mirror image rule- offer and acceptance must MIRROR each other, be exactly the same with no new or different terms.

o Mirror image rule later rejected by UCC § 2-206

o Merced County Sheriff’s employee’s association v County of Merced

§ Memoranda of Understanding misinterpreted by the parties. Sheriffs thought they’d get salary + 90% differential and county thought they would get 90% of average. Firefighters thought the same thing with 85%

· Court says that the sheriff’s contract is enforceable because the Sheriff’s had no idea of the county’s meaning of the words and the county knew of the sheriff’s and paragraph clearly states sheriff’s view.

· The firefighters was not binding contract because lawyer added line which made it ambiguous and therefore cannot be enforced.

· Same words different meaning

§ Notes

· Restatement 2d § 20 (1) – there is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) no party knows or has reason to know the meaning attached by the other or (b) each party knows the intended meaning of the other party

· Restatement 2d § 20 (2)(b) – the manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if that party has no reason to know of any different meaning attached by the other and the other has reason to know the meaning attached by the first party.