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Contracts
Temple University School of Law
Hoffman, David A.

Temple Beasley School of Law

David Hoffman

Contracts

Fall 2014

theory for enforcing promises and the requirement of an agreement

Bargain theory for enforcing promises:

i. Bargained for exchange v. Gift promises:

a. Gift promise: Simple gift promise is not supported by consideration and unenforceable.

Dougherty v. Salt: Dougherty gave her nephew $3000 promissory note, included: “Value Received”.

Rule: Dougherty didn’t make her promise with the motive of extracting something from her nephew in return; therefore, her promise is unenforceable gift promise.

a. Exception: If the donor of the gift actually delivered the gift, he cannot get it back, or the gift is valid when executed.

Maughs v. Porter: Post Advertisement to induce people to come for the chance to win a car.

Rule: A gift is a contract without a consideration and, to be valid, must be executed. A valid gift is therefore a contract executed.

ii. What Must be extracted:

a. To constitute consideration, the promisor must bargain for either a return promise or a performance.

b. The consideration extracted by the promisor from the promisee may be a benefit to the promisor or detriment to the promisee

· Hamer v. Sidway: Uncle promised nephew $5000 if he could refrain from drinking, gambling, smoking until 21 years old.

Rule: the forbearance constituted consideration regardless of whether it benefit Uncle.(***Don’t use detrimental test, Hoffman hates that***)

***Note: normally it is hard to think forbearance would be consideration when it didn’t benefit the promisor at least psychically. However, if psychic benefit is enough then every gift promise could be enforceable.

iii. Policy behind enforcing bargained for exchanges:

a. Formal ground:

· Evidentiary:

· Cautionary: protect promisor from ill-advised and thoughtless promise.

· Channeling:

b. Substantive: about the characteristics ad importance of exchanges.

· Protect people who rely on their agreement.

c. Why don’t the courts enforce Gift promise:

· Gift promises don’t contribute to production of wealth and the division of labor.

· Gift promises would lose their symbolic meaning if they were legally enforceable.

iv. Adequacy of consideration:

a. Restatement (2nd) §79: If the requirement of consideration is met there is no additional requirement of equivalence in the value exchanged.

v. Mutuality of obligation and Illusory promise:

a. Illusory promise:

· De Los Santos v. Great Western Sugar: Transporting Sugar beet. Contract gives one party power to withdraw at will.

Rule: The parties’ agreement was void for lack of mutuality of obligation. The Agreement is not enforceable for either parties. (Noone followed. Don’t use).

b. Implied reasonable effort:

o Wood v. Lucy: Wood had the exclusive right to place Lucy’s endorsement and design for sale. They split the profits.

Rule:

Without an implied promise the transaction cannot have such business efficacy as both parties must have intended.

The Court found implied promise that Wood use reasonable effort to bring profits.

o Weiner v. McGraw-Hill: McGraw induced Weiner come to work for him with a promise that he won’t be fire without just cause. Weiner can quit anytime.

Rule: Lack of mutuality doesn’t void the contract. The contract is supported by consideration.

c. Implied good faith in satisfaction clause:

o If satisfaction clause deals with commercial value or quality, operative fitness, then apply the reasonableness test.

o If satisfaction clause deals with taste, or judgment, apply honest test.

§ Mattei v. Hopper: Sale of land. In the contract, Hopper reserved right to rescind if he can’t obtain satisfactory leases.

Rule: there is implied obligation, judgment has to be exercised in good faith.

UCC §1-304 (p.80): Obligation of Good Faith:

Every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement.

UCC §2-306:

***for exclusive dealing ***imposes unless otherwise agreed an obligation by the seller to use the best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

vi. Pre-existing Duty Doctrine:

a. Traditional Contract law: imposed pre-existing duty to the parties and rejected the contract modification for lacking of consideration

· Alaska Packers’ Association v. Domenico: Sailors who agreed to work for company refused to adhere to the original contractual terms and demanded increased compensation

Rule:

o The workers new contract is based solely on the agreement to render the services previously contracted for.

o Domenico has gained nothing from entering into the new contract. Thus, there is no bargained for exchange.(No consideration)

o The Court concerned about extortion of other side promise.

*** Weak doctrine because any trivial changes could be enough***

b. Restatement (2nd) §89(a):

· Angel v. Murray :refuse collector, modify contract price, mutually agree

Rule: The promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.

c. Hillman modification: requires the modification to be fair and equitable.

UCC (P.708) §2-209: Modification, Rescission and Waiver:

(1) An agreement modifying a contract within this Article needs no consideration to be binding. (But requires Good Faith)

he fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.

a. Offer: An expression of assent (not actual) to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms. Use Objective test of Assent.

· Lefkowitz v. Great Minneapolis Surplus Store, Inc: selling one black lapin stole, worth $135 for $1, first come first served

Rule: The advertisement did constitute an offer, a reasonable would believe the store intended to be bound upon an acceptance because the advertisement was clear, definite, and explicit and left nothing open for negotiation.

***Often the court tends to view advertisement as invitation to negotiate:***

· Ford Motor Credit co. v. Russell: Car dealer advertised a Ford Escort for $7826 based on 11% apr.

Rule:

o the advertisement was not an offer for financing at 11% because a reasonable person would understand that “not everyone qualifies for financing”

o Also dealer didn’t have unlimited number of car to sell. (Less persuasive because reasonable person would understand that the offer stayed open until the dealer ran out of Escort.

Look out for the offer that is too good to believe.( no reasonable person could believe in it)

b. Acceptance:

· Reasonable person’s belief in definitely and unequivocal acceptance.

o Ardente v. Horan: Buying an estate, signed purchase agreement and sent a letter concerning about the furniture.

Rule: Despite the signed purchase agreement, the letter rendered the offeree’s entire communication is no acceptance at all; therefore the offeror was allowed to walk away from the deal

· Silence as an acceptance? No, normally reasonable person wouldn’t believe that silent offeree intends to be bound.

· Exception: Silence means acceptance in implied in fact contract case when there was long history of dealing between parties and the silence constitutes an acceptance(munchkin had shoveled your walk away for many years, this year you haven’t answer but you has reason to know that he expects payment from you and you had received benefit from him)