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Contracts
St. Johns University School of Law
Weiskopf, Nicholas R.

Contracts I

Nicholas Weiskopf

Fall 2010

I. INTRODUCTION TO CONTRACTS

1. Promises

A. Promise- the manifestation of an intention to act or refrain from acting in a specified manner, conveyed in such a way that another is justified in understanding that a commitment has been made

(i) Usually forward looking

(ii) Promisor- making a promise, Promisee- promise is owed

(a) In contracts both parties are promisors/promisees b/c promises are exchanged on both sides

(iii) Bargain- an agreement between parties for the exchange of promises or performances- not necessarily a contract b/c consideration may be lacking

(a) Bargain promises are the most important to protect because when a bargain promise is breached many people are affected

(iv) Gratuitous promises- a promise made in exchange for nothing; not supported by consideration, i.e. I’ll meet you at restaurant on Friday or I’ll give you my book

(a) Generally no legal remedies for gratuitous promises (exception when relied to detriment- see promissory estoppel)

2. Contracts:

A. Contract- an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law; can be written, spoken, or implied

(i) Contracts are forward-looking and not based on past considerations. i.e. here’s $25 for that thing you already did

(a) That wouldn’t be enforceable b/c the $25 did not induce the action as it had already been performed prior to learning of the offer

(ii) Bailey v. West (1969)- D bought a horse from 3rd party. Horse found to be lame upon delivery and to be returned, but ended up at P’s farm. Bill of lading showed to be returned. P sent bill to D after 3 mo. & D replied wasn’t owner/not paying.

(a) Rule- Essential elements of quasi-contract are:

(i) Benefit conferred upon D by P

(ii) Appreciation by D of such benefit

(iii) Acceptance and retention of such benefit so it would be inequitable to retain the benefit without payment

(iii) Bolin Famers v. Am. Cotton Shippers (1974)- 11 cotton farmers agreed to forward sales contracts w/ definite price was set & D agreed to purchase all cotton grown. The price of cotton skyrocketed & farmers wanted out.

(a) Rule- Changing circumstances unless specified for in contract are not enough to void contract.

3. Formalism vs. Realism

A. Formalism- belief that a contract is a contract. Emphasis on rigidity.

(i) Court is not concerned about the fairness of the contract because both sides agreed

(ii) No relief for circumstances occurring after a contract is made because provisions covering such circumstances can always be added pre-contract

B. Realism- Prefer flexible standards to be applied in context.

(i) Courts have discretion in cases where rigid application of the rules results in injustice;

(ii) Substance is preferred over form and function

II. CONSIDERATION

1. Consideration- either a benefit to the promisor or a detriment to the promisee

(i) Performance or return promise must be bargained for

(a) Bargained for when sought by the promisor in exchange for his promise & is given by the promisee in exchange for that promise.

(ii) Performance can be:

(a) An act other than a promise

(b) A forbearance (Hamer v. Sidway)

(iii) The creation, modification, or destruction of a legal relation

(iv) Performance or return promise may be given to the promisor or other; can be given by the promisee or some other

A. Reciprocity of Inducement- As long as both parties realize they are bargaining:

(i) Each has reason to believe what he/she is putting on the table is inducing the other

(ii) Behavior facilitating the rendering of the “gift” (performance or return promise)

(iii) Someone that’s bargaining is more interested in the consideration

(a) No inducement if one executes a unilateral offer without knowledge of reward

(b) Something based on gratitude is not enforceable (thanks, I’ll give you $20)

B. Bilateral Offers- Both sides are promisors/promisees because each offered a performance or return promise. When one promise is accepted or executed a contract is formed w/ each promise as consideration for the other

C. Unilateral Offers- An offer in exchange for performance, but no return promise is sought. Leaves the matter of performance up to the promisee; not required to do it.

(i) Unilateral offers become irrevocable upon commencement of performance b/c the performance serves as consideration for the offer

(ii) Promisee does not have to fully perform even if started partial performance

(a) i.e. take up an offer to find a lost cat, just b/c looking doesn’t mean must search until found

D. Kirskey v. Kirskey (1845)- Sister-in-law widowed, lived on farm. D wrote saying if moved he’d give her land & a house. She gave up her land/possessions & moved. After 2 years, D told her to leave.

(i) Traditional Rule- D’s promise was a “mere gratuity” & no action for recovery lies in its breach.

E. Hamer v. Sidway (1891)- Uncle promised nephew that if he refrained from drinking, smoking, & gambling until 21 he would give him $5k. Nephew completed terms & uncle wrote back saying he’d honor the deal. Uncle died, nephews claim to estate denied

(i) Rule- The abandonment of a right permitted to one by law constitutes consideration even if its abandonment is a benefit (like not smoking).

F. Langer v. Superior Steel Corp. (1932)- After retiring, P received letter from D saying b/c of your loyalty we will give you $100/month if you don’t work with any competitors. After 4 years, P notified that D no longer intended to pay.

(i) Rule- Consideration requires the promisee has done, undergone, or foregone anything or suffered detriment. Abandonment of legal rights is valid consideration.

G. Jara v. Supreme Meats (2004)- Father took out $150k loan to help son & friend start Supreme Meats. After taking out loan, son called for advice on starting pay for him and friend. After agreeing w/ suggestion, promised w/o solicitation that all raises will need shareholder approval & included as much in footnote of the financial statement.

(i) Rule- Subjective state of mind is irrelevant. Unsolicited and gratuitous promises are not binding like a contract b/c ther

to increase to $2400/yr. After 1 year, P said couldn’t afford rent & would either leave or go out of business if made to pay increase. D orally agreed to not raise.

(i) Rule- Even though an agreement had been made to change the agreement, it was not supported by lawful consideration & is therefore ineffective

D. Alaska Packers’ Assoc. v. Domenico (1902)- D agreed to provide workers for Salmon season for $50-$60/day in written contract. During short salmon season, they stopped working & demanded $100/day. P resisted but then agreed; now suing.

(i) Rule- Preexisting duty rule applies. D already obligated under contract. **Amendments made under duress are not valid

E. Angel v. Murray (1974)- Contractor made deal w/ city to be paid for waste removal. Asked for $10k increase b/c units increased by 400, instead of expected 20-25. Both sides agreed, not made under duress.

(i) Rule- Modifications are okay if they have 3 elements:

(a) Modifications to original contract are made before either side fully performs

(b) Circumstances prompting the modifications were unanticipated by the parties

(c) Modification is fair and equitable

4. Illusoriness/ Mutuality of Obligation-

A. Illusory promise- a promise that appears to be so insubstantial as to impose no obligation on the promisor; cloaked in promissory terms, but no commitment

(i) Allows one to withdraw sometime after performance begins for reasons totally or partially within his or her control i.e. I’ll paint your house if I feel like it.

(ii) Essentially, illusory promises lack consideration b/c no promise returned

(iii) Termination provisions are not illusory as long as it provides specific notice i.e. 30 days b/c there is consideration- doesn’t have to be equal

(a) A termination provision that said “have to give notice” is probably illusory

(iv) Cures for Illusoriness:

(a) Court uses objective test when possible. i.e. what would a reasonable person believe under the circumstances: deal or no deal?

(b) Relationships of parties can be a cure as well i.e. Lady Lucy

B. Rehm-Zeimer Co. v. F.G. Walker Co (1913)- Whiskey distillery agrees w/ retailers to provide as much whiskey as they desire up to x amount. Retailer says if for any unforeseen reason can’t purchase they’re not responsible.

(i) Rule- Illusory because retailer could for any reason not buy; that puts all control in retailers hand & does not constitute a promise.

(a) If had stated a minimum; i.e buy 500-1000 that would’ve been consideration