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Contracts
St. Louis University School of Law
Bodie, Matthew T.

 
Saint Louis University
Professor Bodie
Fall 2014
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Introduction
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(§1) Contract
A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
·         BODIE: Two or more parties getting together and agreeing to a joint plan of action of some time
(§2) Promise
A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding a commitment has been made.
(§3) Agreement
A manifestation of mutual assent on the part of two or more persons
(§4) How a Promise May Be Made
(1)    Stated in words either oral or written, or
(2)    Inferred wholly or partly from conduct
(§5) Terms of Promise, Agreement, or Contract
(1)    Term of a Promise/Agreement: The portion of the intention or assent manifested which relates to a particular matter
(2)    Term of a Contract: The portion of the legal relation resulting from the promise or set of promises which relates to a particular matter, whether or not the parties manifest an intention to create those relations.
Uniform Commercial Code
(§1-201)
·         Agreement: Distinguished from a contract, means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including […] ·         Consumer: An individual who enters into a transaction primarily for personal, family, or household purposes
(§2-102) Scope
·         UCC only applies to transactions for the sale of goods
(§2-104)
·         Merchant: A person that deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar  the practices or good involved in the transaction or to whom suck knowledge or skill may be attributed  by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill
·         Between Merchant: Any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants
(§2-105) Goods, Future Goods
·         Goods: All things which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment.
·         Can be unborn young of animals or growing crops
·         Can be a sale of part interest of existing goods
·         Goods must be existing and identified before any interest in them can pass. Otherwise it’s a sale of future goods
(§2-106) Contract, Agreement, etc.
·         Contract/Agreement: Present sale of goods or future sale of goods
·         Contract for Sale: Contracts to sell present or future goods
·         Sale: Passing of title from seller to buyer for a price
·         Termination: When either party put an end to the contract by agreement or law
    – All executory obligation are discharged
    – Any existing performance still survives
·         Cancellation: Either part puts an end to the contracts by breach of the other party
·         Dominant Factor Test: What is the contracts primary purpose? (To determine where good or service)
·         Contract:
(1)   A promise or a set of promises enforceable by law (restatement)
(2)   A legal obligation which results from the parties’  
agreement (UCC)
·         Contracts are important because they’re a mechanism to facilitate the exchange of goods, services, and legal rights between individuals and firms (esp. regarding future)
o   Allows people to have confidence in deals, promotes honesty; way to recover if not
Promise: A commitment to do something even if I change my mind, or at least be responsible for consequences that result from a failure to do so
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Consideration
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Consideration 
·         Consideration serves as the dividing line between enforceable and unenforceable promises
·         How we decide if what was agreed upon is enforceable
o   There are alternatives to Ks without consideration: promissory estoppel, quasi-K
Bargained-for Exchange & Gratuitous Promises
·         Two Theories of Consideration:
o   Benefit-detriment (Hamer)
o   Bargained-for exchange
(§17) Requirement of a Bargain
(1) Mutual assent to the exchange, and
(2) Consideration.
·         Exception: Special rules under § 82-94
(§71) Requirement/Types of Exchange
·         For consideration, performance/return promise must be bargained for
·         May consist of an act other than a promise, a forbearance, or the creation, modification, destruction of a legal relation
·         Can go to a beneficiary instead of the promisee/promisor
·         Cannot use nominal/sham consideration, must be sincere
Hamer v. Sidway (1891)
·         Consideration – Foregoing of Legal Right
·         Facts: Uncle promised nephew he would pay him $5000 to abstain from drinking, drugs, gambling until 21st birthday (performance), uncle dies before payment, P sues D (executor), who says there is not consideration
·         Holding: There was consideration (Abstaining from one’s legal rights is a legal detriment on promise of future benefit) and contract was enforceable, found for P
Three Common Consideration Errors:
(1)   Benefit/detriment confusion
(2)   Need for a bargain for exchange
(3)   Peppercorn Theory v. Nominal Consideration
o   Nominal: Sham consideration, cannot be upheld
o   Peppercorn: Courts will not inquire into the adequacy of consideration
Mills v. Wyman
·         Moral Obligation/Past Consideration
·         Facts: Innkeeper suing father of son she cared for until his death, father promised to compensate her for her care AFTER she had already provided the care, then did not
·         Holding: For D, says past consideration is NOT sufficient consideration, moral obligation does not = legal obligation 
Langer v. Superior Steel Corp. (1932)
·         Moral Obligation/Gift
·         Facts: P (retiree) promised lifetime $100 monthly pension from D, as long as not employed with competitor
·         Holding: There IS consideration (P looking for employment or not is irrelevant to analysis), D is getting something of value by keeping P away from competitors (makes it a non-gift), finds for P
o    Limitation on his freedom of action (Like Hamer)
In re Greene (1930)
·         Past Consideration, Nominal Consideration
·         Facts: Man (D) who gifted mistress (P) house, insurance policy, allowance, etc. all for $1 (nominal) for release of all claims, D went bankrupt and stopped making payments
o    Intent to create consideration is insufficient
·         Holding: Court says this is a GIFT, P gives nothing in return (promise to sue = too vague), unenforceable, promise but not contract
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Conditional Promises
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·         Conditional Promise: Promise in exchange for consideration
·         The provision of the performance that serves as consideration is also the condition that must be satisfied
·         Conditional ≠ Consideration necessarily
o    Restricting a promise by making it conditional does not necessarily create consideration just because the other person satisfies the condition or promises to do so 
o    BUT if the promisee’s agreement to the condition induces that promise and works to place a limitation on the freedom of action that promise would have had, the condition or restriction can constitute consideration (Allegheny)
·         Distinguishes gifts with conditions from bargained-for exchanges
o    Important to look at the context here
Kirksey v. Kirksey (1845)
·         Gift v. Consideration
·         Facts: Widow moved to BIL’s land, 2 years later he moved her to the woods, then kicked her off the land
·         Holding: Court overturned for D, promise on part of D was merely a gratuity (gift) and P’s detriment for moving was a necessary requisite to receive the gift of land; thus questionable on consideration, but court said no
Allegheny College v. National Chautauqua Bank
·         Charitable Contribution, Conditional
·         Facts: Johnston promised to pay $5,000 out of her estate (paid $1,000 while alive) if scholarship fund made in her name and for religious studies
·         Holding: There was consideration (donation money on the premise that it would be used for a certain purpose and with her name for posthumous remembrance), found for P
·         NOTE: Can still be a gratuitous promise with a limitation imposed, just depends on the nature of the limitation  
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Illusory Promises
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of frauds defense
·         Holding: For Stephenson since he relied on AA’s promise, it was reasonable, there was injury (worse off), and unjust
Grouse v. Group Health Plan, Inc.
·         Facts: P gave 2 weeks notice at existing job and rejected another job offer after receiving offer from D, D then withdrew offer after not being able to find P’s references, offered another person the job w/o telling P that he didn’t get position; P sued (for lost wages
·         Holding: Court says they had reason not to have confidence in him as employee BUT should have given him “good will opportunity” for his reliance
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Quasi-Contract/Restitution
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·         Idea is contract SHOULD have been created, but was not; so courts create one for the parties
o   Law creates the K and exchange, not the parties
·         Does not involve a promise at all – A does something, B does nothing; but restitution is the court saying that B now owes A something in return
·         Referred to under many names, including: implied-in-law, restitution, unjust enrichment, quasi-contract
o   Same Concept: Party has conferred a benefit on another without a prior request (or at least an enforceable one) and now seeks compensation for the value of this unsolicited benefit
(§40b) Restitution
P gave benefit to D; D received a benefit, at expense or from P; appreciates/keeps that benefit (unjust enrichment); it is unjust for D NOT to compensate P
·         Any conferred benefit is not restitution; must be under “implied-in-law” contract grounds
·         Cannot get restitution on an implied-in-fact K
Cotnam v. Wisdom (1907)
·         Facts: Doctors performed surgery on unconscious man after accident, he died; Doctors wanted compensation
·         Holding: Suffices the restitution test; K is enforceable
o   Based on idea if Wisdom could have given consent to treatment at the time he would have
Pyeatte v. Pyeatte (1982)
·         Facts: Wife agreed to work and put husband through law school, wife lost job, lived on savings – wife never got to go to school, husband later dissolved their marriage before wife got another degree as promised
o   Clearly is consideration, but terms are not specific/definite enough to have a K
·         Holding: Court said qualifies as restitution (husband conferred benefit through law school education at wife’s expense), unjust for D not to compensate
Farese v. McGarry (1989)
·         Facts: Tenant made improvements on rented property thinking he had opportunity to purchase it (mistakenly); sued owner of the property for specific performance
·         Holding: For tenant. Owner knew he misunderstood & did nothing to correct it allowed him to make improvements to the home and therefore tenant was entitled to recover the value of the improvements
Petrie v. LeVan (1990)
·         Facts: P (buyer) sued D (seller) because house suffered roof damage; P asked D to file insurance claim (D did so, kept the insurance money and did not fix it)
·         Holding: For P, but higher Court said no contract to turn property over in good repair (no breach), said trial court was correct but should have adjusted cost to D so they couldn’t profit twice (insurance + selling price)
o   P should have just cancelled sale, but found D needed to pay cost of roof to prevent injustice  
·         Rule: Right to restitution for unjust enrichment presupposes (1) D receives a benefit, (2) from or at expense of other party, (3) D accepted/appreciated benefit