Contracts Brown 2015 Fall
Contract:
Involves one promise that has legal consequences (refers to the agreement itself)
A contract generally is “…a promise, or set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” – Williston on Contracts
UCC ApplicabilityàSale of goods cases, or in a contract where the sale of goods outweighs everything else in the agreement
· Goodsàall things that are movable at time of identification of the K for sale other than the money in which the price is to be paid, investment securities, and things in action. (UCC §1-205)
· Predominant Factor Testàused to determine whether sale of goods outweighs
o Amount of cost going to parts of K
o Terms of the good
o Terms in the K (buyer, seller)
· General Definitions of UCC
o §1-201(3)àAgreement–the bargain of parties in fact in their language or by implication from other circumstances
o §1-201(11)à Contract–The total legal obligation which results from the parties agreement as affected by the Act and any other applicable rule of law
THE AGREEMENT PROCESS- INTENT TO CONTRACT
· Lucy v. Zehmer (Supreme Court Appeals Virginia, 1954) (for P)
o Lucy (P) and Zehmer (D) in a bar and then K for sale of land. D rescinds the offer claiming it was a joke and O claims he thought it was sincere from the beginning.
o P brought suit for specific performance when D refused to complete the transaction.
o There was a K here because based on P’s conduct, D reasonably believed that it was not a joke. Objective theory and the Reasonable Understanding Testà if the parties agree that there is no K, then no K. If one believes there is no K and the other has reason to know that the other believes there is no K, then no K
o Joking: no contract only if other part aware, or should reasonably be aware, that offeror is jesting. Otherwise enforceable.
Ø Balfour v. Balfour (Court of Appeal, 1919) à Presumption Intending No Legal Consequences (for D)
o Husband (D) promised to send monthly allowance for support to the wife (P). She sued for the monthly allowance
o No binding K here. Court is reluctant to open the floodgates for marital disputes.
· 3 circumstances used for Implied by Circumstances no intent to be bound by legal consequences:
o Husband and Wife
o Allowance/Support
o In Harmony
Ø Texaco v. Pennzoil (Court of Appeals of Texas, 1987)à Preliminary Agreements (for P)
o Penzoil (P) and Getty (D) came up with a Memo of Agreement, said that if they can't agree to restructure, they could force the sale. Agreed upon at Board Meeting, Penn lawyers start writing merger agreement, Texaco comes and buys Getty entities, Penn sues Getty for breach of K (specific performance)
o D: the Memo of Agreement was not a binding contract since it was subject to the approval of D’s board of directors and would expire by its own terms if not approved.
o P: the contract was binding because the Memo had been executed by a group of parties that controlled the majority of outstanding shares in D.
o The trier of fact affirmed that by looking at the K and the 4 factors, there was an intent to be bound
· Preliminary Negotiations Binding Factors:
o Parties explicitly say no K
o Partial Performance of the K (shows thought they were bound)
o Essential terms agreed upon (indefiniteness)
o Complexity and magnitude of the transaction
THE OFFER
(Offers Distinguished from Expressions of Opinion, Predictions, Estimates, Ads for
the Sale of Goods, Invitations for Offers, Statements of Intent, etc.)
· Expressions of Opinionà
o Generally are not offers, make no expression of intent
o Exception: Doctor Patient
§ Where a doctor expresses an opinion that tends towards a promise for a specific result, there is an offer
· (Three promises: cure, achieve a result, follow a procedure)
Ø Hawkins v. McGee (Supreme Court of New Hampshire, 1929) (for D)
o Two Statements: (1) The boy (P) will go home 3-4 days after operation (2) (D) Guarantee that the hand will be 100% perfect hand
o P was not entitled to damages for pain and suffering because he would still have endured them had the procedure been successful.
o (1) Matter of Law: opinion; (2) Matter of Question: Jury said it was a offer
o Recoveries:
§ Reliance Recovery (Pre Breach Condition): Worsening of hand, pain and suffering of operation (which is part of the price you pay for something like this), and Dr. Fees.
§ Expectation Recovery: Price between the value of the resulting hand and the promise hand (value of both must be determined)
§ Restitution Recovery: Just Dr. Fee, Related to the theory of Quasi K (unjust enrichment of D at the expense of P)
Ø Sullivan v. O'Connor (Supreme Judicial Court of Massachusetts, 1973) (for P)
o Sullivan (P) make K with O’Connor (D) for two nose jobs which happened to make nose worse aesthetically than better so she underwent it a third time to fix the problem which did not improve her nose at all
o Reliance recovery is allowed for medical patients who can show doctor promised to achieve a particular result and did not
o Purposes of Remedies: Re §344
§ Expectation Interest: which is his interest in having the benefit of his bargain by being put as good a position as he would have been in had the K been performed.
§ Reliance Interest: which is his interest in being reimbursed for loss caused by reliance on K by being put in as good a position as he would have been in had the K not been made,
§ Restitution Interest: which is his interest in having restored to him any benefit that he had conferred on the other party.
· To determine whether opinion or promise, the reasonable person test is normally applied:
o Whether a reasonable person in the position of the offeror would conclude that D made a promise or merely expressed an opinion
o
ee case
o Offer because response: 1) definite as to material termed inferred from initial letter from the Buyer, soliciting an offer and had the language of intent “for immediate acceptance”
o Normally, a price quotation / price sheet is treated like an invitation to an offer with seller retaining right to accept or reject buyer’s offer.
o Court held that quote specifying for immediate acceptance was an offer as it was accepted immediately.
INDEFINITENESS
· Where there is a vagueness or silence on a material term and it cannot be remedied with reasonable certainty, then the contract will fail for indefiniteness
o Material Terms in a contract:
§ subject matter relating to price, payment terms, quantity, quality, duration etc.
IndefinitenessàCommon Law
· Purport to agreeà covers term, but leaves vague or ambiguous
o Often you need extrinsic evidence and becomes a question of fact
o Quasi contractual (reasonable or fair price),
§ can be cured by conduct of parties (watch suit maker make suit without specifying fabric and acquiescing)
§ can be cured by a future agreement (change from fair pension to 20$ a week)
o Examples:
§ Carload (by trade usage, found value), neat and tasteful (court can look at other examples of the neat and tasteful item to decide), sumptuous living (too vague, but may have been evidence), fair share of the profit (too vague)
o Less certainty required for damages than for enforcement of special performance’
· Silenceà no term at all
o IF intent to Kàcourt tends to include terms that the parties would have intended
§ Look to interpret from the express language of the parties
§ Look to the implied fact terms based on the usage triad (trade usage, course of dealing, course of performance, or other extrinsic evidence)
§ If no express terms and no applicable implied in fact terms found, some courts supply gap-filler
§ Objective standard would be used (similar deals elsewhere that the court can use to fill the gap)
§ Reasonable time, reasonable price
· Implied from surrounding circumstances
o There has to be an objective standard, so no inferred values for quantity, subject matter, specifications
o Silence as to duration of employmentàAt-Will employment presumed UNLESS
§ Employment K
§ Implied in Fact KàPersonnel manual
§ Firing against public policy
