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Contracts
St. Johns University School of Law
Movsesian, Mark L.

Contracts Movsesian Fall 2016

Introduction to Contract Law

Restatement 2d Sect. 1: A contract is a promise or set of promises for the beach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Contract law is all about the rules of promises, which have legally binding consequences.
Sometimes money isn’t enough in contract law, the court will require you to actually complete your promise.

Contracts are voluntary.
Where do we find Contract laws?

Common law
Uniform Commercial Code (UCC)à binding on courts, judges can’t overrule, but they can interpret the UCC.

Only for sale of goods

Goods: all things that are moveable à UCC 2-105(1)

If UCC doesn’t provide a rule, then the common law rule applies, which is stated in UCC 1-103: “Unless displaced by the particular provisions of this act, the principles of law and equity…shall supplement its provisions.”

Example: No definition of offer in the UCC.

Restatement 2d Sect. 2: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

Manifestationà not hidden, promise to the future.

Types of promises:

Type of Promise

Explanation

Express

Intention manifested by words
Does not need to be written
Example: I promise to pay you $5000 for if you take care of my horse

Implied in Fact

Intention is manifested by conduct, not words
What meaning foes the party’s conduct imply in the circumstances?
Example: Auction à At an auction, raising your hand manifests an intention to bid on the item.

Implied in Law

Or

Quasi Promise

No manifestation of intent
Law infers a promise in the interest of justice
Party didn’t intend to make a promise, but he should have. (It is simply the right thing to do)

Bailey v. West: (lame horse) Explores different types of promises.

No express promise here à nothing manifested by words, he wrote back it was not his horse.
No implied in fact promise: West doesn’t care what happens to the horse. Bailey also sent bills to two different people, which shows he was unsure of whose horse it was. No manifestation of intention. No prior business relationship
No implied in Law: none hear because defendant didn’t appreciate it he sent the bill back, and he was a volunteer, which means he couldn’t reasonably expect to be paid by the defendant.

Objective Theory of Contracts

Objective: having an existence outside the mind of the subject.
Subjective: having an existence inside the mind of the subject
Contracts looks to objective intent: “What would a reasonable person understand the promisor to intend?”

Creates predictability & stability in the law. Contracts are planned. This is essential for businesses and individuals to be able to protect themselves. Its also more efficient and cost effective.

Implied in Law Contracts/ Quasi Contracts:

This has nothing to do with intent. Here the law infers a promise in the interest of justice.
Looks at what is reasonable? Uses common sense.
3 Elements

Plaintiff confers a benefit on defendant
Appreciation by defendant (Defendant knew about the benefit and did not decline it)

Unconscious defendant

Unjust for defendant to retain the benefit without reimbursing the plaintiff.

Contracts are hard to get out of. Bolin Farms v. American Cotton Shipper (cotton sales) this was a forward sales contract, which is when you agree to a price before you make a sale. Changes in price, and buyers want an increase in price, they want an excuse from performance. No excuse allowed.

Exceptions:

Sometimes new comers to business will be given more leeway because they didn’t know the risk.
UCC 2-615: If something happens that is so impracticable then you will likely be excused from performance. “ If performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with an applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.”

Damages for breach

Normally we don’t force you to do what you promise but you must compensate the other party for their loss. These are compensatory damages, and rarely include attorney fees.

Type of Damages

Explanation

Expectation

Put the injured party in as good a position as if the K had been performed

Reliance

Put the injured party in as good a position ad if the K had not been made

Restitution

Restore to plaintiff the value of any benefit plaintiff has conferred on defendant. (implied in law contract remedy)

Sullivan v. O’Connor: (Contract to look better and it would take 2 surgeries, wanted Lamarr nose). Good to learn the types of damages.

Can only recover for emotional damages if they are reasonable foreseen, which is hard to do.

Why do we have contracts?

Moral values à it is wrong to not do what you promised.
Economics à increase in contracts encourages people to contract. Creates incentives because it is predictable and stable.
Precludes litigation à Lawyers make contracts to avoid litigation.

Two approaches to solving contract issues:

Formalism

Realism (Pragmatism)

Logical application of rules
Example:

Rule: only K’s in latin enforced
Fact: K in English
Conclusion: K isn’t enforced

Courts shouldn’t consider policy
Dominated in first part of 20th century
Rationale:

Predictiability
Security of transactions
Creates good incentives for parties

Mirror image rule example

“Life of the law has not bee logic; it has been experience.” à Oliver Wendell Holmes
Courts should consider which result makes most sense as a matter of social policy.
Example:

Rule: Only K’s in latin enforced
Fact: No one speaks latin today
Conclusion: non-latin K’s enforced

ration. The underlying intent of the contract was blackmail. This is sham consideration.

Key Take Away: Nominal Consideration is insufficient.

Peppercorn Theory

Nominal (Sham Consideration)

Courts don’t investigate the adequacy of exchange. You can sell your mansion of a peppercorn.

Formalist view, substantive fairness is not important

Rationales:

Libertarian/ Party Autonomy

Efficiency

Skeptism of Relative Values

A mere pretense of a bargain does not suffice, as where there is a false recital of consideration or the purported consideration is merely nominal.

Restatement 2d Section 71 comment (b)

Even though parties intended to have a contract, nominal consideration is insufficient.

Look if it is so lopsided that it is disguising something else.

Dan Cohen v. Cowles Media Co.: (newspaper and anonymity) circumstances here suggest the parties intended not to contract: what would reasonable people understand from their conduct?

Restatement 2d Sect. 21: “Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a K.”

Thomas v. Thomas: “ If you pay us $1 yearly toward the ground rent, and keep the property in good repair, we will allow you to have use of the property.”

Difference between motivation and consideration.
Restatement 2d Sect 81: The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.

Browning v. Johnson: 2 contracts here for the sale of a practice. Here it was sufficient consideration giving up contract number 1, even though he is getting paid 40,000 to do so.

Sufficient consideration. Adequacy of exchange is irrelevant.

Apfel v. Prudential-Bache Securities: plaintiff bought the information/database. Defendant claims he didn’t receive anything of value, but the peppercorn theory rejects this. Adequacy of consideration is not relevant. We don’t care what apfel is getting all that matter is a formal deal was made.
Jones v. Star Credit Corp: Adequacy of exchange is irrelevant except when its unconscionable then it is unenforceable à refer to unconscionability later in outline.