CONTRACTS Colombo Fall 2009
I. Classic Contract3
A. Classic Contract Elements. 3
B. Unilateral Contract5
C. Subjective vs. Objective Theories. 6
Objective Theory of Contract6
D. The Agreement to Agree. 6
E. Formal Contract Contemplated. 7
II. Alternate Theories of Recovery. 7
A. Promissory Estoppel7
1. Family Promises. 8
2. Charitable Subscriptions. 9
3. Commercial Promises. 9
B. Restitution. 9
C. Promissory Restitution. 10
III. The Statute of Frauds. 11
IV. Interpreting the Agreement13
Methods of Analysis. 15
Application of the Objective Fault Theory. 15
V. Parol Evidence Rule. 16
VI. Implied Obligation of Good Faith. 19
VII. Defenses to Enforcement20
A. Duress. 21
B. Undue Influence. 22
C. Misrepresentation. 23
D. Nondisclosure. 24
C. Unconscionability. 25
D. Public Policy. 26
E. Incapacity. 27
F. Impossibility/Frustration of Purpose. 29
VIII. Breach of Contract30
A. Material Breach. 30
B. Anticipatory Repudiation. 31
IX. Damages. 33
A. Expectation Damages. 34
1. Computing the Plaintiff’s Expectation. 34
2. Restrictions on Expectation Damages. 35
a. Foreseeability/Certainty/Causation. 35
b. Mitigation. 36
B. Other Damage Issues. 38
1. Specific Performance. 38
2. Liquidated Damages. 39
I. Classic Contract
a. What is a contract?
i. Promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty.
ii. Key distinctive feature = a contract gives you rights: Right to go to court and make people do things.
a. Bilateral contracts have commitments on both sides –> exchange of promises.
i. Seen by classic theorists as being the product of a negotiating process usually known as “offer and acceptance.”
b. Unilateral contracts are formed when one party offers a promise of future performance only in return for the offeree’s actual rendering of performance.
i. Maximum protection to offeror, who would not be bound unless and until he had received the performance he sought.
ii. Opportunity of withdrawal from contract for both parties until the performance has been rendered.
c. Option contracts are contracts within the contract.
i. “I will hold my offer open for you for a specified amount of time.”
ii. Offeree has the option of completing and accepting the contract or not completing and letting the offer die.
A. Classic Contract Elements
a. Rest. 2d § 24: The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
b. Lonergan v. Scolnikaddresses [the factors used to evaluate whether a communication should be considered an offer or merely a request for further negotiations.] c. Rest. 2d § 26: Preliminary Negotiations
i. A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
d. “LAST SHOT”:
i. Offer is made in such a way that all the other party has to do is say “yes” to conclude. It’s your last communication.
e. 3 factors to evaluate when determining if an offer has been made:
a) The more specific a communication is the more likely it is that it is the party’s “last shot.”
b) Unlikely that offer will be specific enough if it doesn’t include a price or a way to calculate the price.
ii. Specific Parties:
c) The narrower the audience is, the more likely it is it will be an offer.
d) If negotiations are directed to multiple independent parties (as in an advertisement), it is less likely to be an offer.
e) It is more likely an offer has been made when it comes later in the negotiation process.
f) As you get farther down the negotiation list, more likely that you will have an offer, less likely that the initial communication will be an offer.
a. Rest. 2d § 50: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
Once the offer is revoked it cannot be resurrected. The offer is dead.
How do you accept? Any reasonable mode of communication unless the offeror has stated otherwise (“must play hop scotch outside my house three times and not miss once to accept”) Rest. 2d § 30(2)
c. An acceptance must be unequivocal and unqualified in order for a contract to be formed.
i. An acceptance must be on the exact terms of the offer.
d. Counteroffers: Rest. 2d § 39
i. Counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
ii. An offeree’s power of acceptance is terminated by the making of a counter-offer.
iii. Qualified Acceptance: If a seller purports to accept but changes or modified the material terms of the offer (Rest. 2d § 59), he makes a counter-offer which has the same effect as a rejection.
iv. Correction of typos is okay.
v. Changing a penny is still a change!! Yes and a penny does not = yes.
vi. Adding appliances to sweeten the deal is still a change!
e. Power of acceptance created by an offer will be terminated by:
Rest. 2d § 36
i. the offeree’s rejection Normile v. Miller
a) Once you fail to say yes (either you say “NO” or you make a counteroffer, which is the legal equivalent of a “NO”), the offer expires.
ii. counter-offer Normile v. Miller
iii. lapse of time
iv. revocation by the offeror
v. death/incapacity of the offeror/offeree
vi. non-occurrence of any condition of acceptance under the terms of the offer
f. Silence by the offeree rarely amounts to acceptance (but in some circumstances it might result in formation of a contract). Rest. 2d § 69
g. How do you revoke? Rest. 2d § 43
i. Offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent w/ an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
ii. Express/Narrow interpretation: Communicate it to them. Communication becomes effective when the other party receives it.
iii. Implied/Broad interpretation:
a) Reliable third party delivers the information.
b) “It is enough that the offeree receives reliable information, even indirectly, that the offeror has taken definite action inconsistent w/ an intention to make the contract.” (Normile v. Miller)
c) Think about the reliability of the source? Mistake doesn’t matter as long as the party receiving the information believes it to be true.
h. Mailbox Rule: Common law has held that although both offer and acceptance must be communicate to be effective, an acceptance will in some circumstances be treated as effective as soon as dispatched by the offeree.
i. Rule will not apply if the offeror has stated (expressly or by implication) that he must receive the acceptance for it to be effective – “The offeror is master of the offer.”
ii. Not really an issue anymore.
a. Test developed by common law for determining the enforceability of contracts, it is a benefit or right for which the parties must bargain.
b. Rest. 2d §71: Requirement of Exchange
i. To constitute consideration, a performance or a return promise must be bargained for.
ii. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
iii. The performance may consist of:
a) an act other than a promise
b) a forbearance
c) the creation, modification, or destruction of a legal relation.
iv. The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
c. BARGAIN THEORY/Bargained-for-Exchange:
i. Holmes’ Test of Bargained-For Exchange: The promise must induce the detriment and the detriment must induce the promise.
ii. Cross Inducement (Pennsy Supply v. American Ash Recycling)
a) Not enough to have benefit to someone or detriment to someone. Benefits or determinants can exist w/o them being intended to be induced by the other.
iii. Past Act Rule: Past services cannot be consideration because it is a contradiction in terms – cannot induce something that has already happened. (Plowman v. Indian Refining Co.) – Moral obligation also does not constitute consideration.
iv. Donative promises: In general, a promise to give in the future is unenforceable.
B. Unilateral Contract
1. A unilateral agreement may be broken at any point before the acceptance has been tendered by the offeree by payment/performance.
a. Classical analysis of unilateral contra
b. This doctrine is applied in a situation where someone has done something in reliance of a promise, and the person was injured. (what we are really looking for is MONETARY injury).
a. Promise which
b. Promisor reasonably expects will induce action or forbearance
c. Which does induce such action or forbearance
d. PRESSURE POINT = Injustice (binding if justice can be avoided by enforcing the promise) – referred to as Detrimental Reliance:
1. Comparison Point: make sure you have the “Wright” one :
a) Compare where the person will be if promise isn’t enforced to where they would have been if the promise had never happened.
a) Focuses on the action of the promisee in relying on the promise, not the promisor’s reasonableness.
b) The person who relied on the promise will not be protected if it was unreasonable for him to rely on it (“I’ll give you a million dollar donation to build the world’s largest ice cream cone!”)
3. Was there Economic loss?
a) How much?
b) If not, was there some other loss? Psychological detriment?
i. Should we consider mental state – psychological detriment like we saw in Katz v. Danny Dare?
4. Compare Detriment to Gain?
a) Rest. 2d § 90: “The remedy granted for breach may be limited as justice requires.” Court needs to take these things into consideration when making awards:
i. Should we compare someone’s detriment to the gain they experienced while the promise was in force?
ii. “Bubbling crude” – if Greiner had struck oil, no economic injustice, you have made millions of dollars off of the land in the time you were allowed to be on it. Should you be allowed to recover?
iii. Should Shopmaker really pay $13,000 for the rest of Katz’s life just because Katz gave up being a pain in the butt for 3 years?
1. Family Promises
1. Courts are reluctant to enforce promises between family members.
a. Notion of consideration in contract: Promises between family members do not constitute a bargain – quid pro quo exchange not usually intended.
2. Greiner v. Greiner (“Dallas”) illustrates the promissory estoppel analysis in a family promise situation: one who moved on tract and made valuable improvements, relying on mother’s promise to give him land for home, is entitled to continued possession and deed.
a. Comparing where Frank is now (in the house) to where he’ll be when Maggie kicks him out is NOT the right reference point (you’ll always be in a worse position).
i. The correct comparison point is: Where would you have been if Maggie had never made the promise vs. where you would be if we don’t enforce the promise.
ii. Frank is worse off if promise isn’t enforced than he would have been had Maggie never made the promise.
iii. He moved, lost his homestead.
iv. Had she never made the promise = he’d have a house back where he used to live.
v. If the promise isn’t enforced = he’ll be homeless.
3. Wright v. Newmanillustrates the correct comparison point for promissory estoppel:
a. The duty which Wright voluntarily assumed 10 years ago remains enforceable under promissory estoppel:
i. Court’s argument: If you take away this child support from me I don’t know where to find him. Maybe 10 years ago I could find him.
1. Position if promise had never been made: forego child support completely (don’t look for natural father), or look for father.
2. Position if promise isn’t enforced: forego child support completely (don’t look for natural father), or look for father.
3. EXACTLY the same position 10 years ago and now.