Contracts – Fall 2016
Professor Cornell
Generalities
Statute of Frauds
Works as a defense in breaching a contract, saying some contracts have to be in writing (but waivable defense)
Following fall under statute of frauds
Contracts in consideration of marriage/prenuptial agreements
Contracts that cannot be performed within one year. However, contracts of indefinite duration do not fall under the statute of frauds regardless of how long the performance actually takes (so if it’s for the rest of your life, your life can end in less than a year…it’s indefinite)
Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement.
Contracts by the executor of a will to pay a debt of the estate with his own money.
Contracts for the sale of goods totaling $500 or more.
Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation.
Ways to get out of it:
Promissory estoppel/Reliance
Part performance (operates as evidence of the contract)
Restitution (as an equitable remedy perhaps?)
In Donovan v. RRL Corp, statute of frauds problem was taken care of because advertisement included dealership name (takes place of signature) and had the price
UCC
All states copied this for their own except Louisiana
Applies only to goods/transactions between merchants…anything that’s movable
Doesn’t apply to: land anything attached to land, services, things in action (like legal claims), intellectual property does not apply to money, to payment orders governed by Article 4A, or to securities governed by Article 8
Does apply to: dogs and livestock; sale of goods, leasing of goods, use of negotiable instruments, banking transactions, letters of credit, documents of title for goods, investment securities, and secured transactions
Certainty and Definiteness (Restatement 2nd) ßSee Hoffman and Channel Homes in “Preliminary Negotiations” for Application of this rule; Also, remember that offers must be certain
§33: Certainty
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of the contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
§34: Certainty and Choice of Terms; Effect of Performance and Reliance
(1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance.
(2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.
(3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.
§ 206. Interpretation Against the Draftsman
In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.
1) Simple Donative Promises
Restatement 2nd
§1: A contract is 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
§17: Requirement of a Bargain
Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration
Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94
§71: Requirement/Types of Exchange
To constitute consideration, a performance or a return promise must be bargained for
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
The performance may consist of
An act other than a promise, or
A forbearance, or
The creation, modification, or destruction of a legal relation
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
§79: Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is no additional requirement of
A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
Equivalence in the values exchanged;
“mutuality of obligation”
Dougherty v. Salt (NY Court of Appeals-1919)
Facts: Aunt made a note that promised P $3000, payable at her death or before, and contained words “value received.” She signed it. D (carrying out aunt’s will) thinks there was no consideration for promised payment.
Holding: There was no consideration for promised payment. A promise to give a gift, without any other factors, is not enforceable
Reasoning:
Evidence shows that note is merely a voluntary and unenforceable promise
Aunt didn’t owe nephew anything, and she was just giving a gift
A promise to give a gift, without any other elements, is not consideration.
Notes
Bargain theory of consideration (narrow definition): in restatements 1st and 2nd (any non-bargain promises would be unenforceable)
Broad definition: whatever makes a contract legally enforceable (with bargain being one of the possible elements). Many court use this, since there’s reliance that would make a promise enforceable
Conditional bargain promise: parties view performance of condition as the price of the promise (price is you walking to 7/11 for me buying you a sandwich)
Conditional donative promise: performance of condition is the means of getting the gift (you walking to 7/11 is the means)
1) Form; Consideration
Schnell v. Nell (Indiana Supreme-1861)
Facts: D’s wife promised $200 to each member of 2nd party in will. But D agrees to give it over anyways because of his love/respect for wife, and because she helped him acquire all that property, and P gave D 1 cent as “consideration.” 2nd party also agreed not to collect or claim any real estate promised in will.
Holding: The supposed consideration (1 cent, love to wife and her role in helping him get the property, she had the desire to give them this money) was not valid. Contract not binding
Reasoning
1 Cent Consideration: Doesn’t count because it’s nominal (and intended to be so), unacceptable under case law
Wife’s will: not legally binding, so who cares. Moral grounds are not enough to make case.
Love for her and her help in getting the property: Past considerations (unknown if she made a bargain to be industrious and worthy of affection in exchange for his promise to pay); and his current veneration for her is not a l
should take steps to ensure that if he doesn’t fulfill promise, promisee wouldn’t suffer a loss.
Goldstick v. ICM Realty (7th Circuit-1986)
Expectation damages: is good because its simpler, allows you to get some opportunity costs (which are not out-of pocket costs) that reliance measure would miss, and allows you to recover profits you would have made, as necessary as to do justice.
Feinberg v. Pfeiffer Co. (Missouri Appeals-1959)
Facts: At board meeting, D agreed to give P a pension for life and she can retire anytime. Eventually, she accepted it, but she would have worked longer if it wasn’t for the pension. P was old and sick at time of trial (so she couldn’t find work elsewhere to make up for revoked pension).
Holding: P has right to recover pension (it’s not mere gratuity) from D and continue to receive payments. Offer of pension is legally binding.
Reasoning:
There was no consideration given to make pension offer binding, however…
R sec 90: Promissory estoppel: induced action or forbearance estops promissor from saying there was no consideration
Her forbearance is decision to quit, which was on reliance of D’s promise for pension, since she was too old to find work elsewhere
Hayes v. Plaintations Steel Co. (Rhode Island-1982)
Facts: P was about to retire, and a rep for D said they “would take care” of him afterwards because he was so highly ranked in the company. P later received first payment, and it was implied that the payment would continue annually. Under new management of D, they stopped payment.
Holding: P was not entitled to continued payments because his decision to retire was not induced by D’s promise. He was going to retire anyways. No reliance shown.
D&G Stout, Inc. v. Bacardi Imports, Inc. (7th Circuit-1991)
Facts: P is a liquor distributor. D is a major supplier. Because of economic climate, P had to choose between selling out or staying in. P was offered deal to sell out, but D said that it would stay with P, so P doesn’t have to sell out. There was no specific period stated as to how long D would stay with P. P relied on D’s guarantee and rejected sell-out, and then D ditched P. Then P sought out the sell-out again, but got a much lower offer
Holding: P is entitled to reliance damages under promissory estoppel from D’s promise
Reasoning:
Even though P and D’s contract (before D’s guarantee to stay) was terminable at will, D is still responsible for reliance damages such as lost wages, moving expenses, and other expenses that could have been expected by D to be induced by promise (from employment law precedents)
Injury is in the form of lost negotiation leverage, caused by D’s promise
D had full knowledge that its promise would have induced P to say no to sell-out offer (knowledge is relevant in restatement rule), and that pulling out would hurt P’s bargaining position
