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Contracts
Rutgers University, Newark School of Law
Dadush, Sarah

 
Contracts Outline
Professor Dadush
Fall 2013



Questions:
-if someone is drunk but the other person doesn’t know, is the contract valid? If the other person saw me drink a lot definitely not. Reason to know.
-Problem 2-2, at will employment still applies? –Didn’t have a claim because he thought he had one, instead he had to go through workman’s comp. Therefore the consideration of not suing does not exist, therefore not a valid promise.
-Difference between Harrington and Taylor? §86- Past consideration is not consideration. Moral obligation is not clear cut, can be answered both ways. When constant life payments its easier to say when they die they should continue. Lifestyle diference: neighbor vs employer. Severity of injury.
-Why does the mailbox rule not apply to problem 3-4? Strictly cause not read? It was an offer, it was not an acceptance
-Note 5 pg 214, does the Hills ruling still apply? Depends. 2-207 page is important
-Where is trade usage covered?
-Do you have to know of something for it to be a misrepresentation of an assertion? (cockroach infested basement only at night)
-Unconscionability – agree to pay price for oranges, drought causes price to quadruple. Doesn’t apply?
-Reliance Damages based on another opportunity? Make house for a 4k profit reliance would be zero

§ 2 Promise: Manifestation of intention to act or refrain from acting in a specified way, a commitment has been made

Types of contracts

1.      Express Contract: mutual assent is manifested in words of agreement
2.      Implied in fact: Promises of the parties are inferred from their acts or conduct, or from words that are not explicit in agreement
3.      Implied in law: one party is required to compensate the other for a benefit in order to avoid unjust enrichment (ex. Dr finds someone unconscious lying on road and offers performance, person owes reasonable market rate for what Dr performed)
4.      Unilateral contract: promise given for a future act by a promisee ex. Capture of escaped criminal
5.      Bilateral: exchange of a promise for a promise, each promise serving as consideration. Requires Mutuality of obligation
6.      UCC §2-306 Output  K: seller agrees to sell all of his output to a buyer, and buyer agrees to buy that from the seller. Must be in good faith. Ex: Goodyear agrees to sell all car tires that it makes to Ford for one year. NOT requirement because Ford can buy from others
7.      Requirement K: buyer agrees to buy all its requirements from seller, and seller agrees to sell that amount.  Ex: Ford promises to buy from Goodyear all the tired that Ford uses in its business and Goodyear promises to sell all the tires that Ford needs. NOT an output because Goodyear can sell to anyone as long as it keeps Ford happy
8.      §2-306 (2) Use best efforts in exclusive dealings
9.      §87 Option K:
10.  Quasi Contract: Obligation arises not from consent of the parties, but from natural immutable justice and equity- no exchange of promises
11.  Adhesion K: Contracts in which the parties have substantially unequal bargaining positions, and the party in the inferior position is left to adhere to the other party’s terms. (life insurance, consumer loan, residential leases)

Consideration – defined §71

1.      Performance or a return promise must be bargained for

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

3.      The performance may consist of:
a.       an act or promise or
b.       A forbearance – Hammer v. Sidway: Uncle owes nephew 5,000 because he refrained from activities which he was legally allowed to do. Forbearance is enough for consideration. Lakeland v. Columber: At will employment is enough for consideration, forbearing of firing. or
c.       Creation, modification, or destruction of a legal relation

4.      The performance or return promise may be given to the promisor or some other person. It my be given to the promisee by another person

5.      Implied promise to use reasonable or best effort ex. Homeowner signs a contract with broker to sell house over the next 3 months and will get commission

Bargains that are NOT considered consideration in certain context

1.      Pre Existing Duty Rule: Promising to do something you are legally required to do can not constitute consideration. Promising to forbear from something you legally can not do can not constitute consideration.
·         Exceptions:
·         Different promise (agree to add a garage for more money)
·         Made by a different party (Store offers to pay 5,000 more to a mall constructor to have building made on time- that store has to pay)
·         Fair and equitable modification based on unanticipated circumstances (bad soil to build a house, must be agreed on by the party that agrees to pay more)
2.      Nominal Consideration- when promisor and promisee agree to an unreasonable nominal agreement. Ex. Father gives daughter a house for 1$
3.      Illusory Promise §77 – A promise that is in the form of a promise but the substance is not real. It does not limit one party’s options. Neither party is bound. Ex. “to do an act so long as I want to” or “right to terminate without notice”  “Betty hires Arthur for a 5 year contract, but can terminate whenever she wants” Handout 1.  Goodyear does not promise to manufacture tires.
4.      Gratuitous Promise
5.      A minor (under 18) can not be held accountable, but they can hold someone else accountable



RELIANCE
Another way to enforce a promise, useful when there is no bargained consideration

Mutuality of obligation: If you a

n intention to make a bargain 2. Advertisement invites those whom it is addressed to take a specific action without further communication or 3. Overacceptance is unlikely

Offers that may not be revoked:

·         There is an option contract in which the offeree gave consideration for an irrevocable offer for some period of time
·         The offeree relied to his detriment upon an implied or express promise b the offeror not to revoke if such detrimental reliance was foreseeable by the offeror
·         The offeree relied to his detriment upon the offer itself if the such detrimental reliance was reasonably foreseeable by the offeror (Restatement §87 (2))
·         In the case of a unilateral contract, the offeree began performance of the promised act to any extent (Restatement § 45). However, the offeree’s mere preparation to perform does not preclude the offeror from revoking
·         Firm offer. In goods contracts, a merchant indicates in a signed writing that an offer to buy or sell goods will be held open for the stated time or a reasonable time if no time is specified, not to exceed three months, if no consideration if given (UCC §2-205)
§2-205 Firm Offers: An offer given by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed 3 months, but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. Must be signed in writing, can’t be oral

§36 Methods of termination of power of acceptance

Power of acceptance can be terminated by any of:
-rejection or counter offer by offeree
-lapse of time
-revocation by the offeror
-death or incapacity of the offeror or offeree

– “Mirror image rule” – Does not apply to the UCC- any acceptance that adds new conditional terms is a counteroffer not an acceptance §59&61 Ardente v. Horan-sale of house but had to leave furniture

-When the offeree receives from the offeror a manifestation not to enter into the purposed contract §42

-The offeror takes definitive action inconsistent with offer and offeree is aware §43 ex. Selling a car