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Contracts
University of Florida School of Law
Davis, Jeffrey

Contracts Davis Fall 2013

1) Basis for Enforcing Contracts

A) What is a Contract?: “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.”

I) Promise: a voluntary commitment or undertaking by the party making it (the promisor) addressed to the other party (the promise) that the promisor will perform some action or refrain from some action in the future (forbearance).

(i) If a speaker can control the result, then they may be undertaking a promise.

II) Enforceable contract=offer, agreement, basis for enforcing promise/agreement (consideration), capacity to contract

(i) Watch for words fair, appropriate, reasonableàstrong indication that communication is too unclear and not an offer.

(ii) Content—if terms of 1st communication are so unreasonable (i.e. Pepsi/Harrier Jet case), then no offer

B) Consideration requires: A Good Enough Thing (may be promise) sought in exchange for promise

I) NOT Good Enough Things: pre-existing duties, illusory promises, token exchange (if it creates only a pretense of a bargain).

(i) If you have an unfettered right to terminate, then your promise is illusory. If there’s obligation to give notice before termination, then promise is not illusory.

(ii) Bargain must be judged by what parties thought at time

(iii) A good faith (honesty in belief or purpose, absence of intent to defraud) belief that you might have valid claim is enough for consideration.

§ ®Mills v. Wyman: D failed to pay P as promised for expenses P incurred while providing care for D’s ill son. Past experience is not sufficient consideration to support a later promise to pay for the expenses.

II) Substitutes for consideration: UCC dispenses w/requirement of consideration in certain limited circumstances, ex. promise is in writing and signed by the party against whom it’s sought to enforce, certain moral obligations arising out of benefit previously conferred such that enforcement arises out or justice, reliance

C) Theories of Contract Enforcement

I) “Contract as promise”: “intentionally invokes a convention whose function is to give grounds—moral grounds—for another to expect the promised performance.”

II) “Consent theory”: “intention to create a legally enforceable obligation.”

III) “Promissory obligation”: When a promisee reasonably relies on a promise to his detriment, law may enforce the promise.

D) Remedying Breach

I) Article II of UCC applies to all contracts for the sale of goods,

(i) Special rules for merchants: implied warranty that the goods you sell are merchantable (of ordinary quality)

(a) Merchant = person who deals in goods of kind/ someone who has knowledge/skill peculiar to the goods for sale

II) What does it mean to enforce a promise? 2 assumptions:

(i) Redress the breach, not to punish the Promisor

(ii) Compensation is generally substitutional (what is lost expectation?)

III) 3 Protected Interests:

(i) Expectation: how much better would you be if contract performed?

(ii) Reliance: how much better would you be if there’d been no contract at all? Harm suffered b/c of contract

(iii) Restitution: P sets value of benefit conferred upon other, e.g. down payment

E) Employment Agreements have long been given special statutory attention.

I) Employment terminable at will by either party unless contract states otherwise

II) Employee handbooks—what if they’re modified? Effective as long as there’s notice.

§ ®Lake Land Employment Group of Akron v. Columber: fmr. employee allegedly violates non-compete. Continuation of at-will employment relationship after employer imposes new requirement on employee is sufficient consideration for employee’s agreement to requirement.

(a) What did employee get from signing non-compete? 1 view—nothing, employment state didn’t change; other view—he continued to work (forbearance of termination)

F) Promises as consideration must be bargained for—both parties must know that promise was made. “A promise that is bargained for is consideration if the promised performance would be consideration.” Restatement 75

I) A promise is conditional if its performance will become due only if a particular event (condition) occurs, e.g. insurance contracts

(i) Event must occur prior to performance—one party’s duty to perform isn’t triggered until other party has performed.

II) Rights and Duties: A has the right that B shall do an act when, if B does not do the act, A can initiate legal proceedings against B, and B in this situation has a duty to do the act.

§ ®Strong v. Sheffield: P attempts to obtain payment for a note from guarantor, although D convinced guarantor to sign note merely by promising not to demand payment until he felt like it. No consideration for promise because it’s solely at the option of 1 of the parties. In order to be legally binding, promise must be supported by consideration/can’t be illusory.

G) Real estate contracts are uniquely complex due to multiple stages of contracting/intervening activities, parties involved, value of property and salience to the economy

I) ®Mattei v. Hopper: Seller attempts to back out of real estate sale on grounds that buyer’s satisfaction clause (sale was subject to buyer finding satisfactory leases) rendered buyer’s promise illusory. A contract that’s dependent on one party’s subjective satisfaction with related matters may nevertheless be enforceable.

(i) P buyer had good faith obligation to fulfill contract; if he finds the leases, he’s stuck

II) 2 kinds of satisfactional clauses: satisfaction of commercial utility, satisfaction as to personal taste, fancy or judgment

H) Contracts for the sale of goods—distinctive in that parties are repeat players, contracts frequently use standard forms, goods are usually fungible (not unique), can frequently assume there’s a market that can define quality & price.

I) UCC 2-306—buyer must use best efforts to promote sale, seller must use best efforts to supply goods. Flexible promise not necessarily illusory.

II) ®Wood v. Lucy: D attempts to invalidate exclusive-dealing arrangement arguing that supplier never made promise to mkt. goods.

III) Cardozo—if it’s clear that both parties understood agmt. Then it doesn’t have to be explicit. “Whole agmt. is contract, writing is evidence of agmt.

I) Reliance as basis of enforcement

I) Reliance is a change in position by the promisee; used as a basis of enforcement of the promise separate and distinct from consideration. R2d§90

II) Equitable estoppel arises out of conduct on which other party relies®induces detrimental change in position

(i) Based on a misrepresentation of fact, e.g. “don’t worry about getting insurance, I have insurance.” Person who lied has estopped the other party from relying on the truth.

(ii) ®Ricketts v. Scothorn: Judge here created promissory estoppel—paradigm case. P quit work in reliance on grandfather’s gratuitous promise to support her sues executor of his estate when estate fails to pay. Where a person changes position in detrimental reliance on promise, promisor may be estopped from later denying promise.

(iii) ®Wright v. Newman: child support from non-bio father. No claim for consideration, but court found reliance; injustice could be avoided only by enforcing D’s promise

III) Remedy can be limited as justice

haser puts out request for bids; contractors put together their bids

(a) Subs usually place bids at last minute to avoid bid shopping/chopping, this creates risk of clerical mistakes, mistakes in judgment. Sometimes intentionally underbid to make $ on change orders, break up relationships.

(b) Can’t snap up a known mistaken offer

C) The Acceptance: manifestation of assent precisely to terms of offer. Offeror who confers power of acceptance is master of offer (determines terms, mode of acceptance).

o ®Int’l Filter v. Conroe Gin & Ice: Water manuf. Refuses to cancel an ice co.’s order for a filter. Offers give the other party power to close the deal. Offeror controls the method and means of acceptance by the language of the offer. Buyer doesn’t have to explicitly comply with notice requirement, just indicate acceptance.

o ®White v. Corlies & Tift: Builder accepts construction contract by beginning to purchase lumber for the job. When an offer seeks a promise, notice of acceptance is generally required unless it’s dispensed with. Notice to accept must be placed in a reasonable mode of communication.

(i) Unilateral contract: only one person has made a promise. Offeror might seek promise or performance as mode of acceptance.

(ii) Bilateral contract: 2 parties seeking & making a promise

ú ®Allied Steel v. Ford Motor Co.: Ford sought to hold Allied to indemnification agmt. when Allied employee was injured at Ford plant. An offer which suggests a means of acceptance may become binding by performance by offeree. This is an illustration of the “indifferent offer”—is indifferent to mode of acceptance.

(iii) An accommodation is an arrangement/engagement made as a favor to another & implies NO consideration.

(a) If you ship non-conforming goods, you’ve accepted & breached, unless you make notice to buyer of “mere accommodation.”

(b) If an offeror is indifferent as to mode of acceptance, notice isn’t required.

(c) If offeree accepts by performance and offeror isn’t likely to find out, offeree has obligation to try and let offeror know within a reasonable period of time.

(iv) Silence ordinarily manifests no intent (although it sometimes does, based only on prior dealings).

(v) Lapse—offer lapses if not accepted within reasonable period of time.

D) Termination of Power of Acceptance

I) Revocation—offer can be revoked at any time by offeror prior to acceptance (this is an Anglo principle)

(i) Any communication that indicates that the intent of the offeror has changed = revocation

(ii) LIMITATIONS on revocation: R2d42—communication of change of heart is critical to revocation.

(a) Without separate consideration, an offeror may revoke an offer anytime before offeree’s deadline to accept.

(i) ®Dickinson v. Dodds: Offeror gave offeree until Friday to accept offer to sell property, but sold property to someone else on Thursday. There was reliable communication that offeror had changed his mind.