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Contracts
Rutgers University, Newark School of Law
Gelpern, Anna

Contracts Outline

I. A Roadmap for Contract Law
A. Lucy v. Zehmer
Facts: Contract to sell land written on back of bar tab was found to be enforceable, even though D claimed he was joking.
Rules: Private intentions are irrelevant.
Expectation Interest.
Reliance Interest. (Relied on Zehmer’s promise when assigning ½ interest to brother, spent money)
No Restitution Interest. (Would have come into play if D accepted $5 from ¶)

B. Northern Indiana Public Service Co. v. Carbon County Coal Co.
Facts: Long-term contract to buy coal w/ escalator clause. Price spikes, commission says NIPSCO cannot rely on ratepayers to absorb costs if other cheaper sources of electricity are available. NIPSCO tries to end contract claiming force majeure, frustration, impractability.
Rule: NIPSCO assumed risk. Cannot use excuse doctrine if circumstances turn unfavorable.
II. The Bargain Theory of Contract
A. Consideration
1. R2d 71
2. One promise is given for a promise of performance which includes an act, forbearance, or change in legal relation
3. General cases
a. Hamer v. Sidway
Facts – Uncle promises to pay nephew $50K if nephew abstains from certain vices (drinking/smoking) before turning 21.
Rule – Nephew’s refraining from certain vices is a forbearance that amounts to consideration. Benefit to promissory is irrelevant. Sufficiency of consideration is not important, only that there was consideration.
Unilateral contract – not binding until act is completed.
b. Petroleum Refractionating Corp. v. Kendrick Oil Co.
Facts – Defendant contracted to buy oil from Plaintiff who could only get out if stopped making that grade of oil. D says no good, won’t accept and P has to sell to someone else for much less. P sues for breach, D says contract illusory, no consideration. Was a conditional contract.
Rule – Was forbearance on part of P
R2d 77(a) – Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise.
R2d 79 – If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
4. Moral Consideration and Past Consideration
a. Harrington v. Taylor
Facts – D assaulted wife who fled to P’s home where she took an axe and while trying to kill him, mangled P’s hand. D promised to pay $ – didn’t do it.
Rule – Past consideration (ex-post promises) – P no recover since seeking to recompense for benefit previously conferred. It was voluntary, not bargained for.
Moral consideration – promisor acts fro strong sense of duty toward promise
b. Webb v. McGowin – exception – R2d86
Facts – Webb, an employee at lumber co. leaped onto a huge block, diverted its fall, preventing injury to McGowin. Webb becomes crippled and McGowin promises to financially take care of him for his life, and does. When McGowin dies, estate stop paying.
Rule: R2d 86 – Injustice based on past performance and proportionate to the benefit

5. Options Contracts
a. Board of Control of Eastern Michigan University v. Burgess- R2d25, 87
Facts – P had option to purchase D’s land but never tendered $ and P refused. Rule – No consideration received, no option
R2d 25 – Option Contracts – An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
R 2d §87(a)
6. Employment at Will
a. Permanent Employment is terminable at te will of either party w/0 liability to the other
b. Lake Land Employment Group of Akron, LLC v. Columber
Facts – D signed non-compete agreement with employer of 3 years then continued to work for 10 more years. After leaving started a company competing with the P who sued for breach of contract. D claimed that if non-compete clause was in contract when initially hired, then constitutes consideration for his employment, if it happens after employment has commenced, extra consideration is necessary.
Rule: Continued at-will employment is sufficient consideration to support an employment agreement not to compete with his employer even if that agreement is made long after the start of employment.

c. Fisher v. Jackson, 142 Conn. 734 (1955)
Facts – P left job at a bakery to work as reporter for D for less $. Let go after 5 years and sues claiming employment was permanent meaning for life. D claims permanent means indefinite general hiring, terminable at will by either party without liability to the other.
Rule – To constitute sufficient consideration, in addition to detriment, evidence is needed was bargained for, given in exchange for the promise. Xtra consideration.

B. Reliance
1. Definitions
a. Equitable Estoppelis strictly, an estoppel which arises out of a person’s statement of fact, or out of his silence, acts, or omissions, rather than from a deed or record or written contract. Equitable estoppel is available when one party knowingly misrepresents material facts that are then predictably relied upon by the other. The misrepresenting party is

ce to be determined in the future with a cap. D wanted out because price no longer favorable and stopped performing. P suing for breach of contract. Duration of price term is missing.
Rule – In order for a contract to be enforceable, quantity and specific duration in which a particular price is in effect are necessary at the formation of the contract. Price can be filled in by court.
UCC came after this case.
UCC 2-305 – Open Price Term
UCC 2-207 (1) – can interpret the contract for the benefit of the public

B. Offer and Acceptance
1. Definitions
a. R2d 24 – An Offer is a “manifestation of willingness to enter into a bargain, so as to justify another person in understanding that his assent to that bargain is invited and will conclude it”. Common law is mirror image.
b. An Acceptance is consent to the terms of an offer, creating a contract.
c. A Promise is a declaration of one’s intention to do or to refrain from doing something. It can bind the person making the declaration to the thing declared.
2. General Cases
a. Ford Motor Credit Co. v. Russell – R2d26
Facts–P sold D a car with a higher APR than was advertised due to her poor credit. When D defaulted on the payments she blamed higher APR. P repossessed and resold, D sued for breach. This is P countersuit.
Rule – R2d §26 – An advertisement is understood as inviting an offer rather than making one, even when directed to a particular customer…The ad needs to be clear sufficiently definite to be construed as an offer
3. Counteroffers and Mirror Image Rule
a. A counteroffer destroys the original offer and replaces it for the original offeror to accept if he chooses.
b. R 2d §36 lists five possibilities under which an offer is terminated
1. The offeree rejects the offer or makes a counteroffer
2. At the time specified in the contract, or, failing that, at the end of a reasonable time
3. If the offeror revokes the offer
4. If the offeror dies or becomes incapacitated
5. If the terms of the offer include a condition for acceptance that has not yet occurred