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Contracts
University of Illinois School of Law
Tabb, Charles J.

 
 
Contracts Outline
Tabb Fall 2015
        I.            Introduction
A.      Promise- Manifestation of intention to act or refrain in a specified way so made to justify a promisee an understanding a commitment has been made.
B.      Contract- A promise or set of promises for the breach of which law gives a remedy and performance of which law recognizes a duty. Essentially an enforceable promise. 
     II.            Consideration
A.       Definition- Something of value given by both parties to a contract that induces them to enter an agreement or exchange mutual performance.
B.       Old view- Benefit/Detriment (Benefit to the promisor/Detriment to the promisee)
                                                               i.      Appeal of Clark- Couple cared for older man and he promised $700 promissory note for their services of taking care of him. Court held to be sufficient consideration.
a.        The inadequacy of consideration is not sufficient to avoid contract.
b.       The value of services is subjective and only promisor can decide value.
                                                              ii.      Worth v. Case- Sister who took care of brother and received promissory note for services rendered thought to be valid consideration.
                                                            iii.      Wolford v. Powers- Naming of a child sufficient consideration.
                                                            iv.      Dougherty v. Salt- 8-year old boy received promissory note from aunt but the court held that it was not supported by consideration.
a.        The boy had done nothing for that promissory note. No legal detriment.
b.       Court considered it a voluntary and unenforceable promise of an executory gift.
                                                              v.      Hypo: “I promise to give you $100 if you come up to my office after class and get the money.” Supported by consideration or gift promise.
a.        Depends on intention of promisor ($100 for hanging out=possible consideration but $100 just because=gift promise.
                                                            vi.      Hamer v. Sidway- Uncle promised to pay nephew $5,000 if he didn’t smoke, drink, play billards until he was 21.  Intermediate court found no sufficient consideration; NY Court of Appeals did.
a.        Intermediate Court: Nephew agreed not to do things that only were harmful to himself and did not suffer a detriment since the acts were harmful.
b.       NY Court of Appeals- The nephew had a legal right to smoke and play billiards. “Restriction of his lawful freedom of action.”
c.        If no reasonable person would have took Uncle seriously, then no consideration unless nephew is gullible and uncle knew of that.
C.       Modern View- Bargained-for exchange
                                                               i.      Restatement §71: 1) A performance or a return promise must be bargained for, 2) Is bargained for if sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
                                                              ii.      Baehr. V. Penn-O-Tex- Plaintiff did not bring suit against Penn-O-Tex and argued that his forbearance constituted consideration. Court held that it did not.
a.        There was no bargained-for exchange between forbearance to bring suit and defendant’s conduct.
b.       Needed to communicate that he was holding off suit in reliance on POTOC saying they were going to pay.
                                                            iii.      United States v. Meadors- Meadors signed loan guaranty form even though her name was not on it because she thought she had to. Court held no consideration.
a.        The government gave up nothing to induce Meadors to sign and her signature did not induce government to give money.
b.       In other words, she signed the form gratuitously.
                                                            iv.      Meincke v. Northwest Bank- Older lady signed subordinate agreement to make bank give some family members a loan. Appellate Court held no consideration but Supreme Court did.
a.        The old lady knew that by her signing an agreement, her family members would get money.
                                                              v.      Batsakis v. Demotsis- Plaintiff leant defendant 500,000 drachmas ($25.00) while ∆ was in Greece during economic troubles in exchange for a promise for ∆ to pay $2,000 at a later point. Court held sufficient consideration.
a.        Courts do not consider adequacy of the consideration unless nominal value.
b.       This was not nominal value due to the different currencies and context of the loan.
                                                            vi.      Schnell v. Nell- Husband of deceased wife agreed to pay $200 to 3 people that his wife wanted him to pay. Court held no consideration.
a.        Alleged three forms of consent: 1 cent, love for being industrious and surrender all claims against estate.
b.       None of these are valid consideration.
                                                           vii.      Dyer v. National By-Products- Plaintiff lost his foot during work accident, laid off 7 months after workers comp. expired. Plaintiff supposedly got lifetime employment promise if he would forbear suit. Court found consideration.
a.        If the plaintiff, in good faith, belief that he had a claim then it could be consideration. Must belief he has a chance of winning. R§74.
D.       Contract Modification
                                                               i.      Consideration must be present for contract modification. Can be difficult to get around if one party does not do anything different from original contract.
                                                              ii.      Pre-Existing Duty Rule- There is no consideration if there is no difference between new agreement and what was required by the duty of the old contract.
a.        Hypo: A agrees to sell hat to B for $25 delivered on Thursday. C tells A that he would buy it for $50. A goes back to B and says that it needs him to pay $50 now. B agrees to pay $50, but come Thursday only pays $25. B is NOT in breach because of pre-existing duty rule.
b.       However, he would have to pay $50 if A agreed to give it to him Wednesday because that changes the original contract.
                                                            iii.      Alaska Packers- Hold up game. Company doesn’t have to pay additional sum they promised due to the workers refusing to work unless they got paid more.
                                                            iv.      Angel v. Murray- Angel sued City and Maher when City agreed to pay Maher an additional $10,000 on the final two years of trash pick-up contract. Court found valid agreement.
a.        If we strictly apply pre-existing duty (pick up trash), then no consideration.
b.       §89 allows this modification when not fully performed if modification is “fair and equitable in view of circumstances not anticipated by the parties when the contact was made.”
c.        The additional of 400 new houses constituted a change in circumstances.
d.       UCC 2-209(1)- Agreement modifying contract needs no consideration to be binding. Must be in good faith though.
                                                              v.      Birdsall v. Saucier- Sauicer owed Birdsall 115k from commission on real estate but ran into troubles. Made agreement to pay 29.5k and assign promissory note to Birdsall from buyers of property. Court held valid consideration.
a.        Accord- Contract between debtor and creditor of settlement of claim for something other than what is due. Needs to be supported by consideration. Accord allowed when there is a good faith dispute about money owed.
b.       Satisfaction- The completion of the the accord.
c.        Can’t be for just less money, but can be for money and some property, etc.
d.       Court found that the promissory note intended for the debt to be extinguished therefore there was accord and satisfaction.
 
  III.            Alternatives to Consideration
A.       No actual contract, but courts enforce the agreements anyway.
B.       Promissory Estoppel
                                                               i.      R§90- A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisor and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
                                                              ii.      Elements of PE
a.        A promise (some courts say clear and definite)
b.       Promisor reasonably expects promise to induce reliance by promisee (the more definite and substantial, the more likely to be enforced)
c.        Promise in fact does induce actual reliance by promisee
d.       Justice requires enforcement. (Courts can enforce just reliance measure rather than entire contract amount.)
                                                            iii.      Can only have PE when there is not a traditional contract.
                                                            iv.      PE is very fact intensive.
                                                              v.      Kirksey v. Kirksey- Moving from one place to another in reliance on place to live is likely to be PE.
                                                            vi.      Ricketts v. Scothern- Grandfather gave granddaughter 2k in hopes that she would stop working. She did so and then she sued for payment of the note. Court found PE.
                                                           vii.      Conrad v. Fields- Gentlemen agreed to pay girl’s law school tuition. She quit her job and enrolled in law school. Sued for debt accrued from tuition and court f

of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
     (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
                                                               i.      Lucy . v. Zehmer- Zehmer owned piece of land and drunkenly sold it to Lucy as basically a “calling his bluff” type deal. Zehmer drew up note and had wife sign but refused to deliver. Lucy sued for specific performance. Court held for plaintiff.
a.        Tried to argue for intoxication defense but conceded he wasn’t drunk enough. Would have worked if other party (Lucy) knew the other was very intoxicated.
b.       Tried to argue for “joking” defense, but would have so show that Lucy knew or had reason to know he was joking.
c.        Look at outward manifestation of intent judged by a reasonable person standard that understands relationship of parties.
d.       If joking but Lucy was humorless, then Zehmer would have to know he was humorless to be enforceable.
                                                              ii.      Raffles v. Wichelhaus (The Ship Peerless)- Plaintiff (seller) sued buyer for not accepting delivery of cotton from Peerless in December. Buyer claimed it meant, and only knew of, the Peerless ship in October. Court held no contract.
a.        There was no meeting of the minds because each party thought something different on a material element.
b.       Additionally, there was no basis for holding one of the parties responsible for knowing the correct term, so there is no contract.
B.       Assent to Indefinite or Incomplete Terms
                                                               i.      Four Types of cases when indefinite/incomplete problem arises
a.        Uncertain Commitment to Deal
b.       Vague Terms
c.        Missing Terms
d.       Terms left for future resolution
                                                              ii.      Two sets of issues
a.        Do the parties intend to be bound at all? If negotiating, then no.
b.       Even if so, did they reach an agreement with certainty that the courts can enforce a breach?
                                                            iii.      Courts may fill in open terms by looking to the industry standard.
                                                            iv.      If one party has complete control over specific term, then that party needs to act in good faith.
                                                              v.      Quake v. American Airlines- Quake won bid for construction from AA and Jones (GC), notified by letter of intent because AA needed subcontractor license #’s. Court held that dismissal in favor of ∆ was unfair and remanded.
a.        AA said that terms were missing and still needed to be negotiated and had a cancellation clause in letter.
b.       Quake argued that definite-enough terms were in the LOI.
c.        Always ask: what is the intent of the parties?
                                                            vi.      Academy Chicago Pub. V. Cheever- Wife of John Cheever agreed to gather stories of her widow and put them in an anthology for Academy to sell. Court ruled for defendant.
a.        Missing minimum # of stories, who picks stories, no date for delivery.
b.       Academy argued that they needed flexibility and many book contracts had certain parts missing.
c.        Court did not want to write terms into contract that were not there.
                                                           vii.      Sun Printing v. Remington Paper- Parties enter into contract for ∆ to sell 1,000 tons of paper a month to π with a price specified for first 4 months but not the next 12. Court held that no contract existed after first four months.
a.        No way to look at market price since it fluctuated so much.
b.       Did not want to write terms into contract like Academy.