Contracts Outline/Summary – Prof. Lucas – Spring 2015
Common Law- generally governs
Art. 2 defines “goods” as all things movable at the time they are identified as the goods to be sold under the K
Applies to most tangible things (e.g. cars, clothing, food), but doesn’t apply to the sale of real estate, services (e.g. health club membership) or intangibles (e.g. a patent)
What is the more important part of the K?
If it is mostly goods, the UCC applies
3 Basic Questions
Is there an enforceable obligation?
4 elements-consideration, agreement, definiteness & absence of adequate def
What performance is due?
What are the remedies for non-performance?
Contract- Rest. § 1: a promise or a set of promises for the breach of which the law gives remedy, or the performance of which the law in some way recognizes as a duty.
Lack of an adequate defense
Most common type of K
Both parties to agreement are making promises
Promise to pay is the necessary consideration to induce promise
Both have remedies if you fail
Exchange of a promise for performance
Essentially one promise involved
One side of enforceability
No remedy if the other party fails to perform
Is there an Enforceable Obligation?
Consideration-Rest. § 71: Requirement of Exchange; Types of Exchange
To constitute consideration, a performance or a return promise must be bargained for
Refers to an element of exchange which is sufficient to satisfy the legal requirement
A performance or return promise is bargained for if:
It is sought by the promisor (manifesting the intention) in exchange for the promise and;
Is given by the promisee in exchange for that promise (reciprocal relationship- the consideration induces the making of a promise and promise induces the furnishing of the consideration- mutual assent through external manifestation)
BOTH elements MUST be present- the promise induces the conduct of the promisee and the conduct of the promisee induces the making of the promise (the promisor sought the promise.) Lack eitherà Lack consideration.
Inducement- not merely giving something they want)
Foundational requirement of any K
Mutuality of obligation: when consideration exists for the exchange of promises, the undertakings on both sides must be real and meaningful
Restricting/attaching conditions to a promise does not necessarily make it a consideration
BUT if the promisee’s agreement induces the promise and there are restricting/limiting conditions then we have consideration
Look to the parties’ intentions
Ex: KU’s agreement induces Lucas to give money to name the stadium then there is consideration (name on stadium is specific and valueable to the person)
Issue: whether the promise to give money for a scholarship fund was consideration, therefore enforceable
The Ct said that the colleges duty to maintain the fund in her name acts as valid consideration
The Dissent said the sum for the fund was only a gift for the college and was not consideration
Lake Land Employment Grp.
Issue: Is subsequent employment (after signing a non-compete) sufficient consideration to support the agreement when nothing changed regarding the terms of employment?
Ct said that the employers decision to keep an at-will employee served as consideration to support the noncompetition agreement
Mutual promises- promise to employ and be employed
Dissent: employer ends up with right to discharge employee and noncompete while the employee is left with the nonright of employment as long as employer decides to keep him
See illusory promise
Exception: Illusory promises (lacks mutuality of obligation)
Definition: an apparent promise that is so qualified, or which such wide discretion is reserved, that the apparent promisor is actually making no binding commitment at all
Strong v. Sheffield
Is a request followed by performance sufficient for consideration?
No consideration for D’s endorsement- he didn’t make a promise for anything- although the promise not to collect was conditional on the forbearance, there was no specific date
The consideration should be tested by the agreement, not by what was actually done under it (even if he had asked for the money in two years- there still would not be valid consideration)
Cf. Satisfaction Clauses
Commercial Satisfaction Clause- dissatisfaction cannot be arbitrary, capricious or unreasonable (as judged by a reasonable business person)
Personal Satisfaction Standard- judged by individual good faith
Mattei v. Hopper
Issue: Is the satisfaction clause illusory or lacking mutuality?
Ct held the obligation was not illusory or lacking mutuality- promises were exchanged- both assumed some legal obligation
Needing satisfactory leases from the banker is valid
Gibson v. Cranage
Cf. Best Efforts implied in every exclusive dealing K
Wood v. Lucy, Lady-Duff Gordon
Issue: Best efforts to perform- implied promise in the contract
Ct says the promise to use best efforts to sell the clothing was an implied promise- why would he enter into an agreement if he wasn’t going to do anything (especially if it made him money)
Intention of parties: Both parties knew he would have an obligation to market/sell for business to be profitable
Purpose of K: business agreement would lack effectiveness if he didn’t sell the clothing
UCC 2-306(2): implied best efforts
Essential test is whether party is acting in good faith
Consideration may consist of:
Promises: Rest. § 2: a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made.
Parties to a promise:
Promisor: the person manifesting the intention
Promisee: the person to whom the manifestation is addressed.
Where performance will benefit a person other than the promisee, that person is an beneficiary.
Is there a legal effect of duty?
As a threshold matter, determine whether statements made are promises or mere predictions/opinions
General Rule: A promise is a manifestation of intent to be bound- judged by an objectively reasonable standard.
Hawkins v. McGee
Issue: Was the do
Mills v. Wyman
Issue: private or moral obligations vs. legal obligations
Is there consideration?
No inducement for the father to pay, because the care P provided happened in the past and the father has no current inducement because the son was dead.
The promise to pay was a gratuitous promise not a legally binding promise.
Webb v. McGowin
Issue: Is there valid consideration in preventing injury or death? Was the employer induced to promise payment for the life-saving action?
The action of P was of material benefit to decedent (saving from injury/death) and receiving the benefit, decedent was bound to compensate P)
Basic rule: mere moral obligation is not valid
Courts may find some exceptions:
Moral obligation arises from a preexisting legal liability and is acknowledged by promise
One party has attained a benefit or separate legal detriment
Courts refuse to rescind agreements when contract has been partially accepted
Distinguishing Mills and Webb
Mills- son is dead so the obligation ended and he promise happened after the fact
Webb- forward looking relationship- ongoing benefit
Mills- obligation between son and helper, not father and helper
Webb- Individual making the promise received benefit
Rest. § 22: Mode of Assent: Offer and Acceptance
Manifestation of mutual assent normally takes the form of an offer by one party followed by an acceptance by the other party
A manifestation of mutual assent may be made even though no offer or acceptance can be identified and even though the moment of formation cannot be determined
No need for completion of offer and acceptance
Reasonableness Standard: judge parties words/actions by reasonable standard
Lucy v. Zehmer
Issue: Was there a binding K when both parties signed the agreement believing it was truthful while the other party claims it was a joke?
Yes, we use a reasonable standard to interpret D’s words and acts
Look at the terms and the parties
Both parties rewrote the K, P attempts to pay $5 and takes the agreement (consideration and exchange of promises)
P gets title evaluated and calls D, then D says he is joking (time involved)
Leonard v. PepsiCo, Inc. (Part 1)
Issue: Can P get specific performance based on Pepsi’s commercial showing a jet? Did the commercial constitute an offer?
No, it is not reasonable. The commercial was a joke and Pepsi was just advertising in a general sense
Advertisements: generally no an offer- they are invitations to enter into bargain (See below-