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Contracts
Rutgers University, Newark School of Law
Tractenberg, Paul

 
CONTRACTS
TRACTENBERG
FALL 2013



Road Map to Contract Law
A)     Lucy v. zhemer (bluff, dare, jest)
a.       Lucy V. Zehmer- Lucy offered $50,000 for farm land owned by Zehmer. Zehmer signed an agreement to that effect on a napkin, and signed it along with his wife. Later claimed drunk/kidding.
i.      Does not matter what Zhemer subjective intent was (bluff/jest/dare), an objective observer would believe Zhemer intended to K.
ii.      Lucy relied on Zhemer’s acceptance in hiring a lawyer, and signing over half ownership to his brother
iii.      Zhemer was not intoxicated to the point that he did not know what it was he was signing, therefore intoxicated defense not applicable.
B)     The Objective Theory of Contract- Common law approach
a.       A contract has nothing to do with the personal or individual intents of contracting parties.
C)     The Subjective Theory of Contracts- 19th century and on approach, “meeting of the minds”
D)    Contract/No contract (expectation, reliance, restitution)
a.       Expectation interest- Nothing changed in terms of money or land ownership in Lucy v. Zhemer, but Luzy had an expectation interest in performance
b.       Reliance
E)     Fairness
F)     Written Contract
G)     Third Parties
H)    UCC approach (not common law but statute)
a.       Northern Indiana Public Service v. Carbon Co- NIPSCO signed K with Carbon Co to purchase coal over 20 years. Coal became more expensive than alternative sources of energy, NIPSCO tried to shift burden (unable to as public utility), then just stopped accepting coal.
i.      NIPSCO argued Force Majeure and doctrine of frustration.
1.       NIPSCO did not suffer Force Majeure because its regulatory body (Gov’t) did not prevent it from completing the contract, just from shifting cost onto consumers
2.       Doctrine of frustration only applies when risk is not assigned, UCC also specifically only suggests a seller might be able to escape contract under this doctrine, not the buyer (who is better able to bear the risk).  
The Bargain Theory of Contracts, Consideration, Reliance , Restitution.
Consideration – The Device to determine if a promise should be legally protected
a.       Performance or return promise must be bargained for.
b.       Performance or return promise is sought by promisor in exchange for this promise, and is given by the promise in exchange for that promise.
c.       The performance may consist of a) an act other than a promise, b) a forbearance, c) the creation, modification,, or destruction of a legal relation.
A)      Bargain for exchange where one party does not seem to benefit. Consideration?
a.       Hamer v. Sidway- Uncle promises nephew 5,000 on his 21st birthday provided he refrains from smoking, drinking, playing billiards for money.
i.      Court determined Nephew NOT performing a legally permitted act constituted forbearance
ii.      Uncle did not gain material benefit, but perhaps gained intangible benefits, family image protection etc.
B)     Forbearance as not firing an employee in at-will situation consideration?
a.       Lakeland Employment v. Columber- Columber signs non-compete agreement, later terminated and opens own business similar to Lakeland. Columber argues no consideration for non-compete, thus not enforceable.
i.      Lakeland’s forbearance was not firing Columber, which is had every legal right to do as an at-will employer.
C)     Abandoning a right can also serve as consideration
a.       Petroleum Refractionating corp v. Kendrick Oil-  D contracted to buy oil from P, allowing for D to cancel contract if it stopped making that grade of oil. After a shipment D notified P they would no longer accept shipments due to poor grade of oil. P sold remainder at $.20/gal loss.
i.      D argued the promise was illusionary because it let P cancel at any time.
ii.      Court held P’s giving up the right to sell their oil to other buyers was sufficient consideration
D)    Moral consideration and Past Consideration
a.       Harrington V. Talor-  Friend was about to kill husband Δ when π intervened, but as a result her hand was mutilated. Δ promised to pay for π medical bills, but only paid small sum.
i.      Δ Should have kept promise for moral reasons, but the law does not recognize voluntary humanitarian acts like this to constitute consideration.
b.       Webb V. McGowin-  Δ who saved his boss from potential death or serious harm was crippled for life. Π promised to maintain for Δ’s life, but after π died the payments stopped
i.      Moral obligation is sufficient consideration where the promisor received a material benefit, the promise then becomes binding to the extent to prevent injustice
E)     Option Contracts- Period of time that allows the offeree time to accept or reject the offer.
a.       Hamilton v. Leroy- Hamilton entered into two stock purchase agreements (option contracts) with 80 day period, before 80 day span lapsed Leroy withdrew offer.
i.      1$ nominal cost of option contract was never paid, but because Hamilton provided $5,000 earnest money it constituted a detriment to Hamilton and Benefit to Leroy sufficient to establish consideration
b.       Eastern Michigan Univ v. Burgess- Option contract for land, 1$ consideration stipulated in contract never actually paid.
i.      Court held no consideration
F)     Employment at will
a.       Fisher v. Jackson- π Gave up job making 50$ a week for a $40 a week reporter job under the understanding that the job was “permanent” (believed to be an offer of lifetime employment)
i.      Giving up a job was not bargained for by the Δ, since it was not part of the bargain it cannot be viewed as consideration.
Reliance – If a promise is relied upon it should be enforced.
A)     Promissory Estoppel (shield not sword): Prevents one party from withdrawing a promise made to a second party if the promised party relied on that property. Requires:
i.      An Unequivocal promise by word or contract
ii.      Evidence that there is a change in position of the promise as a result of the promise (reliance but not necessarily as to their detre

as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. What constitutes an Offer? An offer is clear, definite, explicit, and leave nothing open for negotiation.
b.       2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
C.       What constitutes an Offer? An offer is clear, definite, explicit, and leave nothing open for negotiation.
a.       Ford v. Russell- Ford advertise car at x price which can be bought for y monthly payments with specific financing plan. P gets different financing plan, defaults, sues for recovery.
i.      Was Fords adv a guarantee of those terms?
ii.      No, limited number of Ford cars, and not everyone qualifies for that specific financing plan based on prior credit.
D.      Does accepting offer with additional terms terminate offer?
a.       Offer creates power of acceptance in offeree. However, Offers are canceled via (5) methods:
i.      If the offeree rejects the offer or makes a counteroffer
ii.      At the time specified in the contract, or, failing that at the end of a reasonable time after the offer is made
iii.      If the offeror revokes the offer
iv.      If either offeror or the offeree dies or becomes incapacitated
v.      If the terms of the offer include a condition for acceptance and the condition fails
b.       Davis v. Satorm
i.      P sends D letter of intent, D changed some terms and sent to P; P sent unsigned commercial agreement, and D signed and wrote in additional terms (attry aprv); D attorney had reservation, and D backed out. P wanted specific performance.
ii.      Signing with additional terms is a counter offer, not acceptance, therefore no K formed. Offer had a condition for acceptance, which failed.
iii.      Real property contracts require “meeting of the minds”, mirror image rule (offer and acceptance must be identical)