Contracts Taussig-Rubbo Spring 2016
INTRODUCTION TO CONTRACT LAW
Bailey v. West: (lame horse) Bailey took care of a horse that was refused by West (buyer who returned the horse, and sought cost for taking care of the horse when the court found that West owed purchasing price to the seller. The court found that there was no “implied-in-fact” contract, and also no “quasi-contract,” as West has never intended on forming a contract with Bailey.
Implied-in-fact Contract: Without intent of both parties to contract, there is no implied-in-fact contract.
Quasi-contract: imposed by law to avoid unjust enrichment where a benefit is conferred to the defendant when it is inequitable to not pay for it. However, service that is rendered gratuitously without request makes plaintiff a “volunteer” and cannot recover restitution for the reasonable value of service.
Bolin Farms v. American Cotton Shippers Assoc.: (attempt to void contract when cotton price suddenly surged) As a matter of law, the price and circumstances at the time when the contract is made are determinative and whatever happens after the date of the contract cannot void a valid contract.
Williams v. Walker-Thomas Furniture: [Unconscionable contract] (Furniture store’s contract that had repossess all items per default on payments) When there is a gross inequality of bargaining power between the parties, leading to a contract in which that one party had no meaning choice, the court may render the contract void for its unconscious character.
Sullivan v. O’Connor: (Plastic surgery on nose gone wrong) [Hybrid of Expectation Damage and Reliance Damage] Because the expectation damages are too great for a service that is uncertain of its outcome and the amount for reliance alone is too small, thus recovery of cost expended with the pain and suffering by doctor’s breach is appropriate.
Hadley v. Baxendale: (Mill handle delivery gone wrong) [Consequential Damages] The loss that is not foreseeable when the contract is entered cannot be recovered as a consequential damages. The seller’s breach must be judged by willingness, negligence, bad faith and availability of replacement item.
UCC § 2-715(2): Consequential damages resulting from the seller’s breach
THE BASES OF CONTRACT LIABILITY
Section 1. The Consideration Requirement Selections: Rest. 2d § 17, 71 & Chapter 4
Rest. § 71: [Consideration requirement] Consideration is a performance or a return promise that is bargained for. A promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise for that promise. The performance consists of (a) act other than a promise, (b) forbearance, or (c) creation, modification, or destruction of a legal relation.
Kirksey v. Kirksey: (Promise that is not binding for sister in law) for an executory promise must be supported by a sufficient, bargained for consideration, or else it is a gift that is not binding. [Before Promissory Estoppel was established] Hamer v. Sidway: (Promise not to drink or smoke) [Forbearance as a consideration] Uncle’s promise to $5,000 inducing a forbearance is a sufficient consideration to support a contract.
Langer v. Superior Steel Corp.: [Forbearance as a consideration] a promise of pension for a former employee who is retired in exchange for not seeking employment at a competing corporations is a sufficient consideration and the promise is not gratuitous but binding.
Preexisting Duty Rule
Alaska Packers’ Assoc. v. Domenico: [Modification of contract without consideration is unenforceable] (Fisherman in Alaska asking for new contract) performance of a preexisting legal duty guaranteed by contract is not sufficient consideration to support a promise. However, courts have ruled that modification is enforceable where there are additional conditions to the preexisting duty. Also, UCC § 2-209: “An agreement modifying a contract within this Article needs no consideration to be binding.”
Mutuality of Obligations
Wood v. Lucy, Lady Duff-Gordon: [Exclusive right to market fashion designs] Wood contracted with Lucy for an exclusive right for Lucy to endorse designs with her name for one year, but she breached the contract arguing that the contract was void as Wood did not have to do anything. Court ruled that there is a contract if a promise may be implied from the writing. Although the contract did not specify that Wood had to use reasonable efforts, such promise is implied from the circumstances as Wood promised to make monthly accounting and acquiring patent and copyrights shows the intention of parties.
UCC § 2-306(2) *where an agreement for exclusive dealing in goods impose, unless otherwise agreed, an obligation to use best efforts by both parties.
Omni Group, Inc. v. Seattle-First National Bank: Clarks contracted to sell a house to Omni, who included a satisfactory clause, and Clarks rescinded the contract and counter argues that contract with party satisfactory clause renders the contract illusory and therefore invalid. The court ruled that Omni’s promise was not left to unfettered discretion but Omni was bound to act in good faith, and thus the contract was not illusory, rendering the contract enforceable.
Section 2. Promissory Estoppel
Selections: Rest. 2d § 90: A promise that the promisor reasonable should expect to induce and does induce action or forbearance on the part of promisee or third party is binding, if injustice can be avoided only by enforcement of the promise. A charitable subscription or marriage settlement is binding without proof that the promise induced action or forbearance.
Ricketts v. Scothorn: Scothorn received promissory note for $2,000 as a gift so that she didn’t have to work anymore. After Ricketts (grandfather) passed away, Scothorn sued to recover the value of the note. The court noting that the promissory note that Scothorn had received was a gift as Scothorn abandoning her job was not a consideration for the gift, ruled that promise is binding as it induced action or forbearance and to avoid injustice by enforcing such promise.
Algheny College v. National Chautauqua County Bank: Johnston promised Allegheny College $5,000 30 days after her death to establish a scholarship in her name and gave $1,000 as a down payment. She tried to revoke the bequest but died soon after. The College submitted $4,000 claim to her executor and Bank refused, arguing that there was no consideration for the promise. The court ruled that when there is even a slight legal detriment or the performance of some condition, it may be an adequate consideration that holds especially true for charitable pledges.
Section 3. Moral Obligation
Selections: Rest. 2d § 71, 74, 79, 81, 82, 83, 86
Mills v. Wyman: Mills took care of Wyman’s dying son, and when Wyman learned of Mill’s acts, he promised to repay the expenses incurred by Mills but later refused to compensate Mills. The court ruled that a moral obligation is not a sufficient consideration to support an express promise.
Webb v. McGowin: [Moral obligation enforceable] Webb, while dropping 75-lb pine blocks, dove with the block to save McGowin (his boss) from being injured and was paralyzed as a result. McGowin promised that he would pay him $15 every two weeks for the rest of Webb’s life. After McGowin died, the executor of his estate stopped the payment, and the court found that moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.
Manifestation of Mutual Assent
Selections: UCC § 2-204, 205, 206, 207 & 208
Rest. 2d § 18 – 34
Embry v. Hargadine, McKittrick Dry Goods Co.: Embry, while working for Hargadine, approached McKittrick and demanded a new contract or else he would immediately quit. McKittrick allegedly agreed to rehire him but Embry was fired following February. He sought to recover the salary owed to him under the alleged rene
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Dickinson v. Dodds: [Indirect Revocation of Offer] Dodd gave Dickinson an offer that is open until a later date. Dickinson decided to accept the offer the day before the expiration in belief that he had time but was informed by Berry that Dodd has decided to sell the property to another. The court ruled that an offer may be withdrawn by an indirect revocation were the offeree receives reliable information from a third party that the offer was withdrawn. The writing was not an agreement to sell but an offer as both parties had not yet agreed to go through with the deal and no consideration was given.
Rest. § 42 Revocation by Communication from Offeror Receiving by Offeree: An offeree’s power of acceptance is terminated when he receives from offeror a manifestation of an intent not to enter into the proposed contract.
Humble Oil & Refining v. Westside Investment Corp.: [Irrevocable Option Contract] Humble paid Westside $50 for an irrevocable option to purchase a property, but subsequently wrote to Westside seeking to amend the sales contract to extend all utility lines to the property prior to closing. Before, option expired, Humble wrote the second letter, and saying that it was exercising its option without any qualification, and that Westside could disregard its prior requests for amendments. The court ruled that if an original offer is irrevocable ad creates in the offeree a “binding option,” the rule that a counteroffer terminates the power of acceptance does not apply. Therefore, Humble’s first letter did not terminate the option contract, and it did not surrender or reject the option. The option contract itself was an independent contract, thus enforceable.
Overview: Petitioner entered into an agreement with respondent to purchase real estate through an option contract. A written option contract was executed between the parties and earnest money exchanged. Subsequently, a letter of amendment to the contract of sale, subject to the option contract, was sent to petitioner requesting his signature; petitioner did not reply but deposited the remainder of the earnest money into escrow pursuant to the terms of the option contract. Respondent contended that petitioner rejected the option contract by respondent's subsequent letter of amendment. Petitioner successfully argued that the option contract was an independent agreement that required him to do no more than he did. Additionally, he was not foreclosed from negotiations relative to the contract of sale, as distinguished from the option. As such, petitioner did not surrender or reject the option and it was a binding obligation between the parties.
Outcome: The court reversed the judgment of the trial court and held that petitioner was entitled to specific performance of the option contract, because the option contract was an independent agreement between the parties and did not terminate negotiations regarding the contract of sale.
Rest. § 37. Termination of Power of Acceptance under Option Contract: An option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirement are met for the discharge.