Contracts – Professor Jonathan Hyman – Fall 2011 – Rutgers School of Law
I. CONTRACT FORMATION
A. Requires Offer, Acceptance and Consideration
B. UCC § 2-204:
i. Contracts for goods can be made in any manner sufficient to show agreement of the parties
ii. An agreement may be found even though the exact time of formation is unknown
iii. There can be remedies for breach of a contract if some of its terms are ambiguous
C. Offer + Acceptance:
1. Contracts seek to enforce promises. Does not need to be in writing- can be an oral agreement
2. “Mailbox Rule”: Parties in contract are bound to an offer or an acceptance when the letter containing either is posted.
i. Duration of Offers: Last as long as they are specified to, or for a “reasonable amount of time” under the circumstances
ii. Advertisements: Not deemed as offers; the reasonable person cannot read them as commitments to supply an indefinite amt. of people with unlimited amount of things publicized.
1. Leonard v. Pepsico, Inc.: A K was not made when advertisement for Harrier Jet with Pepsi Points was run.
E. Revocation of an Offer: Usually an offer can be revoked at any time before acceptance, even if there is a promise not to revoke the offer. Once there is reliance on a promise not to revoke, there is no grounds to revoke (i.e. if valuable collateral has been exchanged)
i. Silence: Silence does not mean acceptance of a contract UNLESS the parties have a continuing relationship. Then, the contract can be deemed renewed unless a party specifically cancels it.
ii. Mirror Image Rule: Acceptance has to mirror terms of the offer. Counter-offer is deemed a rejection of first offer.
iii. UCC §2-207:
1. “If there is a definite and seasonable expression of acceptance, there is a contract.”
2. “Conduct by bother parties which recognizes a K is sufficient to establish a K although writings of parties do not otherwise establish a K”
G. Consideration: Either some right, benefit, interest or profit accruing to one party, or some detriment, loss or responsibility given, suffered or undertaken by the other.
i. What is consideration?
1. “ A bargained-for exchange”
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2. See Hamer v. Sidway (Family Bait): Consideration is not so much one person benefiting, but another abandoning some legal right in the present as an inducement for the promise of another (legal detriment: agreeing to do something you’re free not to do)
3. Restatement §71: Definition of Consideration
a. To constitute consideration, a performance or return promise must be bargained for.
b. It is bargained for if it is sought by the promisor in exchange for his promise and given in exchange for that promise.
c. Performance doesn’t need to affect the promisor/promisee: could deal with actions toward a third person.
d. The performance may consist of:
i. an act other than a promise
ii. a forbearance
iii. the creation, modification, or destruction of a legal relation
4. “Tramp Example”
a. Man tells tramp to walk up the street and buy a coat. Act of walking up the street is legal detriment to tramp, but is not consideration because the walk was not requested as the price of the promise, but merely as a condition of a gratuitous (benevolent) promise. If condition will benefit promisor, it is a consideration and a K is established.
5. Transforming Gifts into Bargains (also see Family Bait below)
a. Some courts support “peppercorn theory”: even nominal gifts can be consideration;
b. Restatement says no: gift must induce promise
6. Reliance Makes Consideration (see also: promissory estoppel)
a. See Ricketts v. Scothorn below
ii. What is not consideration?
1. Courts will not enforce a contract where the consideration “on its face” is grossly unbalanced: i.e. paying $95 for $5.
a. Courts reason that these considerations are usually procured by fraud/duress
2. Modified promise does not constitute consideration: go by original terms (i.e. Seller refuses to complete job without more $$ and Buyer pays to stop fight)
a. BUT Restatement says a promise modifying a contract is binding without consideration if modification of fair.
3. Illusory promises are not consideration: If promise is bogus or doesn’t limit promissor’s options, it is illusory. (i.e. I’ll perform if I feel like it)
iii. When is a promise enforceable without consideration?
1. When there is a debt to pay
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2. When someone relied on the promise to their detriment and when justice necessitates that promise be enforced
(promissory estoppel: Restatement §90)
iv. Unilateral Contract: One in which one party promises a reward if another does something they want. Promisor is not committed until promisee performs action or even starts to perform consideration: Once he accepts and starts performing, a binding contract is created.
1. “Promise for a performance”
2. i.e. asking someone to mow the lawn for $: once he starts mowing, a K is formed, and mower must be paid
v. Bilateral Contract: Promise is made provided that an action is performed. A mutual exchange of promises.
1. “Promise for a promise”
2. i.e. Seller promises to deliver goods if Buyer pays for them
vi. Promises recognizing past services: Past Consideration
1. In general, a promise to pay for benefit already received does not make a contract unless promissor has been unjustly enriched or justice requires enforcement.
2. “Unasked for” favors are usually construed as gifts, no
ible view: More indefinite or limited statements will suffice; Follows Restatement §90: when statement can be inferred to be a promise and is reasonably expected to be treated as a promise, it can be enforced.
J. Employment Contracts:
i. Employment-At-Will and Additional Consideration
a. However, if “additional consideration” is made in exchange for defendant’s promise of permanent employment, recovery under general K principles might apply.
i. Additional consideration involves conveying an extra benefit to the employer besides working and not just showing a detriment on the part of the employee.
ii. Additional consideration does not include leaving current job to take another (here, leaving the farm job)
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c. Employee may claim wrongful discharge when discharge is contrary to public policy mandated through legislation, rules, judicial decisions, etc. But, termination must be directly against expression of public policy.
i. Employee cannot claim wrongful discharge where his actions were in line with public policy. (good worker)
4. Employee Manual Becomes Employee Contract
a. Manuals become “contracts”: There is Offer of handbook, Acceptance of terms when employee is hired, and Consideration of bargained-for exchange “I will work for you under these terms.”
K. Statute of Frauds:
i. Contracts must be in writing if:
1. They are for the sale of real property; or
2. The contract cannot be performed within a year of its making.
ii. Also see UCC §§ 2-201
II. SOCIAL CONTROL OF CONTRACTS
A. Just because a K is made properly, doesn’t mean it should be enforced by the courts when public policy and social concerns are at issue.
B. Contracts Against Public Policy
i. Courts have long asserted the power to refuse to enforce contracts that are against the interests of the public
ii. To do this, courts weigh factors such as: Burden/detriment resulting from denial of enforcement vs. Gravity of harm caused by enforcement
iii. Examples of Contracts that May Violate Public Policy and Be Limited By Courts:
1. contracts restraining trade
2. contracts that impair family relations
3. promises to commit a tort or violate a fiduciary duty