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Contracts
SUNY Buffalo Law School
Su, Rick

Contracts Su Fall 2016

I. An Overview of Contract Law (Pg 1-4, 14-23, 53-57 [9/1], 23-52 [9/6], 66-94 [9/8], 94-124 [9/13])

Fundamental Questions

When a person promises to do something but later changes their mind will or should the law intervene and enforce the promise?
If yes, what steps are appropriate to enforce these promises?

Sources and Functions of Contract Law

Explain the patterns of promissory enforcement observed in contract law

Descriptive and positive theory

Justify the exercise of state coercion through application of contract law

Normative theory!

Why do we have contracts? Autonomy, Efficiency and Fairness

Autonomy: Recognize an individual as an individual, both from a promisor and promisee standpoint

If promisor changes his mind how is the sutoomy?

Making the promise and binding yourself to it, being able to make a decision and prove a point (to create trust)

Court will be looking at formation of contract

Intent of the parties, time and whether that was truly was intended

Efficiency: Efficient market system, want the society to produce more good than bad, better off for more people tan not

Basic express contract, making exchanges to allocate resource to people who value it the most
Scope of efficiency, concerned more about the world in which the contract occurs not necessarily the indivudal person/specific context, more concerned wihth the rule in each case and setting precedent

Fairness: Sense of justice, fairness of relationship between people in the contract

Duty to act on contract with good faith

4 Basic functions of contract law

Solve an initial sorting problem

We must identify criteria for determining the enforceability of promises
Understand what behavior constitutes a promise

Gap-Filling Function

Promises made to others are invariably incomplete
Contract law fills in parts of an agreement not expressly stipulated
Default rules that inform contract formation

Provides Rules for determining meanings of promises

Contracts commonly contain promises that allocate future, risks, but parties disagree who takes the loss
Provides rules that enable courts to determine what the parites meant by their promises
Legal rules that guide courts in resolving questions include the parole evidence rule and rules that govern the interpretation of language and of customary understandings

Solve a line-drawing problem

Which are defaults and can be opted out of and which are mandatory and cannot

Theories of Contract Law

Promisors have a moral obligation to keep promises

Enforcement of serious promises will encourage promises to rely on such representations in the future, opposite leads to promisees to be more cautious

Each above theory lacks internal consistency as a fully developed theory

Restatement 2nd of Contracts: Contract defined

A contract is a promise or a 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

Restatement 2nd: Promise defined

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

Restatement 2nd: Implied in Fact Contracts

Mutual agreement and intent to promise (conduct only)

Requirements for a Legal Contract

Offer and Acceptance (doctrines)
Consideration: Bargained for exchange in return for a promise (doctrine)
Legal Capacity of the Parties
Legal Purpose

Types of Contracts

Express Contract

All the essential terms of the agreement fare found in words, oral or written

Implied in Fact Contract

Created by conduct rather than words; facts and circumstances indicate that a contract or agreement has been entered into

Plaintiff furnished some goods/services
Plaintiff expected to be paid for goods/services
Defendant knew or should have known payment was expected
Defendant had opportunity to reject services and did not do so

Implied in Law Contract: quasi contract

View that a person should not be allowed to profit or enrich himself inequitably at expense of another; only volunteer based for good nature

Meeting of the Minds

Agreement upon both parties that they know what they are gettinginto and know the issues/disputes wanting to be solved

Consideration Doctrine

Bargained for bilateral exchange

What is a Promise?

Lucy v Zehmer

Facts: Contract written on bar napkin, Zehmer agreed to sell plaintiff farm for 50,000, but believed it was a joke. P offered 5 dollars to bind, D retracted immediately.
Rule: Serious intent and objective test were present therefore there was a contract formed

Objective versus Subjective intent

Court in Zehmer says “mental assent of the parties is not requisite for the formation of a contract
One of 2 rules to determine mutual assent

Meeting of the minds, actual intent by both parties to agree to propsed part
Under rule courts would enforce a promise only if the promisor subjectively believed he made a firm promise

In Zehmer the court assigned loss to party who believed could have more readily reduced the risk of misunderstanding.

Which Promises Will be Enforced

Once a court determines there was a promise made, it must decide if the promise is one that it should enforce
THE GENERAL RULE is that contracts that lack consideration are not enforced, while those contracts that are supported by consideration are enforced
Existence of consideration in contract means that an exchange has taken place between the parties
Hamer v. Sidway

Story promised nephew 5000 if nephew didn’t smoke, drink or swear until age 21.Nephew fulfilled promise and he agreed to keep money in bank. Uncle died and executors didn’t want to give nephew money and claimed no consideration.
RULE: A valuable consideration may consist either in some right, interest, profit, or benefit accruing to the one party or some forbearance, detriment, loss, or responsibility give, suffered, or undertaken by the other when there is valid consideration, the contract must be followed through.The nephew abandoning the behavior which shows a detriment and this contract did not just benefit one part.

St. Peter v. Pioneer Theatre Corp.

Theatre had a “bank night”, prize advertised as 275. Plaintiff and her husband were outside when name called.They went inside but d refused to give reward because they were one minute late.
RULE: The sufficiency of consideration lie wholly within the discretion of the one who offers to pay the prize.The arrangement must be supported by valuable consideration.

What is a Contract?

Bottom up: Start with “Do parties intend for contract to exist?”

Courts want a MoM

Definitiveness: Intent, Industry practices, can determine intent

If you cant find a term, I cant do any remedy, external constraint

Trimmer v. VanBommel

Trimmer became involved with VanBomel, they broke up and he wants

Adequacy of Consideration

Batsakis v. Demotsis (TX)

D borrowed 25$ from P in exchange for note that said she borrowed 2000$ and would repay that amount with interest.She didn’t pay and now it’s a lawsuit.
RULE: Inadequacy of consideration alone will not void a contract.It is not the courts job to decide if the consideration was enoubh/proper, etc

Wilford v. Powers (Indiana)

P brought suit against estate of Lehman to obtain judgement on a promissory note for 10000$.Lehman promise that money if they named their child after him, and he would make childs welfare his chief object.When boy was 5, L executed a note to P for the money as a preference to conveyance of property. P cared for L as he aged.
RULE: Where there is no fraud and a party gets all the consideration he contracts for, the contract will be upheld. A court will not refuse to enforce a contract on the grounds the consideration is inadequate, if it was valid to the parties that is all that matter.

Promissory Estoppel (the one, the only: RELIANCE) (Counter Rule to Consideration)

Section 90 of restatement deals with RELIANCE
Explains contracts that don’t fall under consideration.
Reliance principle- promises may be enforced if the promisee has incurred costs, or conferred benefits, on the reasonable expectation that the promise would be fulfilled
DEBATE RELIANCE v. CONSIDERATION

Generally, consideration is the rule and reliance is the exception, however, they counter balance

1) Move away from form in section 90 and go right to substance/substantive goal
2) Formalism v. Realism

formalism=law was science-precedent repeated will find the real/pure law
realism= law is man-made, the way judges wil determine cases

3) Contest of what court will enforce/not enforce

Family member promises and charitable gifts, the context is opening up as in treating contracts differently based on subject matter

Charitable Subscriptions: CONSIDERATION OR RELIANCE

Congregation Kadimah Toras-Moshe v. DeLeo (Mass.)

HOPE OR EXPECTATION IS NOT A LEGAL DETRIMENT OR RELIANCE
D had an illness and P gave support, in presence of witnesses d made an oral promise to give p 25000$ which the p planned to use to make a library in Ds name.No evidence P intended library. P died and estate did not fulfill promise
RULE: When there is neither legal benefit to the promisor nor detriment to the promisee, there is no consideration and therefore no contract, there was no reliance because money was not spent yet.

CONTRAST: Allegheny College v. National Chautauqua County Bank

Return reliance, college would name scholarship after a woman who made contributions to the school and wanted a scholarship naed after her. She changed her mind, but had already started giving money.Court held there was a contract because of reliance from money already given