Contracts Outline

General Methods to Approach
Õ vs. Δ
Õ – must est.
1. enforceable K
o offer sufficient definite – mutual assent
o consideration
2. show breach
o K interpretation
o Substantive default rules – sub perf., anti. Rep., excuse, good faith
3. remedies
o think broad – all losses you can possibly imagine suffering as consequence and try to fit them under a theory of damage or SP. P.
o expectation is default – but remember limitations of foreseeability, certainty, mitigation
i. sometimes reliance or restitution might be better
4. alternatives to alleging breach of K
o P. Estoppel
i. Natural damages are reliance – but – what about expectancy
o if complex biz negotiation, show that there was binding PRELIMINARY agreement
o QM – implied K – unjust enrichment
i. Usually restitution

Δ – must est. – distinguish defenses to K from args that did NOT breach
1. no enforceable K
a. no assent
b. no consideration
c. St. of Frauds – must be written
d. OR underlying effects for which K should not be enforced
i. Big 3rd party effects – Pub policy
ii. Fraud
iii. Duress
iv. Mistake – duty to read
v. Unconscionable
o ** these are defenses – have nothing to do w/ performance after time K is made
2. NO breach
a. Interpretation – we didn’t “really” breach
i. Breach = material breach (substantial perf.)
ii. Non performance excused – frustration, impos/imprac
3. Limit damages
a. Certainty, foreseeability, mitigation

Weapons of argument to get out of contract (that is already in performance):
1. say the other side breached – if they breach, you don’t have to perform
2. contract interpretation
a. plain meaning = dictionary meaning
i. plain meaning rule always assumes bringing in dictionary (outside) evidence
b. bring in outside info (parole evidence) to define terms so PER does not apply
c. if PER applies, show partial integration and that evidence does not contradict
d. argue for necessity of contextualist view (predominates today anyway)
3. other side performs in bad faith!!!!! ® no honesty in fact; trying to take back something it gave away
a. Classic case: other side is performing opportunistically to get you to breach. Make them become the bad guys.
b. Courts can always limit discretion to act by reading an IMPLIED duty of good faith in every contract.
4. if all else fails, try frustration, impossibility/impracticability
a. but remember, the default rule is that there is NO EXCUSE for frust, impos/imprac.
b. Problem is that they are too interpretive.
5. For excuse cases, need occurrence of UNFORESEEN contingency that is OUTSIDE one’s control and risk is UNALLOCATED either expressly or by custom.

I) Introduction to Contract Theory (Basics)

Autonomy Theory

Reliance Theory

Instrumental Theory

Legal enforcement of K promotes individual freedom by giving people power to bind selves to others.

K begins when offer is accepted; contracting binding b/c parties intend to be bound. Individual is morally bound to keep promise b/c invoked the conventions with the function of giving grounds for another to expect promised performance.

Communicated promise often induces promisee to change course of future behavior (reliance).

When promise is broken, reliance represents harm to promisee caused by the promise and its breach

Parties enter into K’s b/c each believes K makes her better off.

Promise making benefits parties and society as a whole b/c it places the liability on the party with the comparative advantage in preventing or minimizing the likelihood of misunderstanding.

Types of Contract

Bilateral

Unilateral

Promise-for-promise (present commitment for future performance. Must have mutuality of obligation.

Promise for performance; only 1 promise. Person performing is not bound to perform the act, but once she completely performs, the promise becomes enforceable.

Restatement (2d) §56: requires notification of acceptance for acceptance by promise

Restatement (2d) §54: Does not require notification for acceptance by performance unless:
· Offer so requests or
· If offeree has reason to know offeror cannot learn of acceptance during reasonable time, offeror’s duty discharged unless
– Offeree exercises reasonable diligence to notify
– Offeror learns of performance in reasonable time or
– Offer indicates no notice required

Modern view: Most contracts are bilateral
Acceptance by performance or start of performance: Under U.C.C. and Restatement possible to form a bilateral K by starting performance. All offers are doubtful which may be accepted by promising or performing, unless clearly indicated otherwise by language or circumstances. In this situation an offer that is accepted by the beginning of performance constitutes a bilateral K. Therefore don’t need exchange of promises to be bilateral.

Limited to two circumstances:
· Where offeror clearly indicates completion is only manner of acceptance
· Where there is offer to public which so clearly contemplates acceptance by performance rather than promise (promise would be ineffective – so many possible people) that only performance will manifest acceptance

Test for determining uni v. bi: At the time of K does each party have a right and duty (bilateral) or one party has right and other has duty (unilateral)

Types of contracts, by formation:
· Express: formed by language, oral or written.
· Implied: no express agreement, conduct of parties imply agreement from which obligation in K can be said to exist. Treated as express K re enforcement.
· Quasi-K: not K; no reference to intent or agreement; obligation imposed by law to avoid unjust enrichment. Permit P to bring restitution action to recover benefit.

Requirements for a contract (Restatement Second §17):

Bargain, in which there is a
Manifestation of mutual assent

Alternatives to Contract:
· Promissory estoppel: no K was created, promises reasonably induce action or forbearance on other party’s part and therefore promise is held binding when necessary to avoid injustice. Reliance is enough to require enforcement even though there’s no bargain or consideration.
· Unjust Enrichment: no K created; enforcement allowed in cases where it would be unjust to let a party receive a benefit without paying for it.

Three doctrines of enforcing promise:
Consideration (§ 71) (oldest doctrine used to determine legal enforceability)
· § 71 of Restatement (Second) sets out “bargain theory” of consideration, which replaces predecessor, the “benefit-detriment” theory of consideration in Hamer v. Sidway.
· §71 — Bargained for promises supported; Gift promises are not
Promissory estoppel (§90)
Material benefit rule (§86)

Invalid K:
· Void: without any legal effect from start.
· Voidable: parties may elect to avoid.
· Unenforceable: agreement is valid but not enforceable due to defenses.

II) Contract Formation

A) CONSIDERATION

Basic Elements
o R2d § 17 – Need bargain with manifestation of mutual assent AND consideration
o Functions of Consideration:
§ Evidentiary – Proof of intent to be bound – establishes existence of a K
§ Cautionary – Helps ensure hasty and unreasonable promises not enforced
§ Channeling – Offers channels for legally effective expression of intent
§ Policing – Rule out gratuitous promises
§ Formality – Will not enforce where consideration is a mere formality
o R2d § 71 – Requirement of Exchange – Bargain Theory
§ To constitute consideration, a performance or return promise must be bargained for.
§ It is sought by the promisor and given by the promise in exchange for their promises
§ Performance can include:
· An act other than a promise
· A forbearance, OR
o Forbearance must be result of the bargain, not merely a condition (an element of a gratuitous promise)
· Creation, modification, or destruction of a legal relation
§ Promise or performance can be given to/by promisor/promisee or some other person
o R2d § 73 – Performance of a legal duty owed to a promisor, which is neither doubtful nor subject to an honest dispute, is not consideration
o Important Points
§ Gratuitous Promises are not supported by consideration!
§ Typically, courts only enforce contracts supported by consideration

Hamer v. Sidway
Court of Appeals of New York (1891)

Kirksey v. Kirksey
Supreme Court of Alabama
(1845)

St. Peter v. Pioneer Theatre Corp.
Supreme Ct. of Iowa
(1940)

Reminder

Benefit-detriment theory

Bargained-for v. Gift

Unilateral contracts

Facts

Uncle promised nephew, William Story, $5,000 on his 21st birthday if he refrained from drinking, swearing, etc. until he reached that age. When he reached 21, the money was in the bank earning interest under the Uncle’s control. 2 years later, uncle died, without having paid the $5,000 or interest.

The plaintiff’s husband, and father of several of her children, passed away. His brother wrote her a letter, inviting her and the children to come to his home (sixty miles away) where he would take care of them and help raise them. After two years, he stopped making good on this promise and eventually required her to leave

Pioneer Theatre Corporation was holding a bank night. The plaintiff and her husband were outside the theatre, both having bought and signed tickets that night. Somebody told them that the wife had won the prize. They both went inside. She went up to the manager who told her that it was actually her husband who had won the $275 prize. She motioned for her husband as the lights went out. When they came back on and the husband reached the theatre manager, he told him that he was a second too late to retrieve his prize

Procedure

Executor of estate rejected claim for money. Action brought, ruled in plaintiff’s favor. Reversed on appeal.

The plaintiff filed a claim for assumpsit (common law action for breach of a promise or breach of contract – express or implied promise, not under seal, by which one person undertakes to do some act or pay something to another) and a verdict was found in her favor for $200. The defendant appealed.

The plaintiff’s demanded judgment for the $275 and costs. Action was dismissed at plaintiff’s costs. The plaintiff appeals, assigning as error the sustaining of the motion to dismiss and the entry of judgment.

Issue

Does a contract in which the promisee is not harmed, or even benefits, have consideration sufficient to make the promise enforceable? And if promisor does not benefit?

Is sufficient loss and inconvenience enough to establish that a contract has been made and to furnish consideration to make said contract legally enforceable?

Can a binding promise and legally enforceable contract be formed if there is no promise as consideration or no monetary consideration?

Holding

Judgment of special term affirmed (Ruling in favor of plaintiff)

No cause of action available for breach of gratuitous promise, judgment below reversed. Gift promises are not supported by consideration, no benefit to brother in law, she simply did what was necessary to confer the gift.

Court’s ruling was erroneous, the requested acts were bargained for.

Reasoning

He restricted his legal rights for his uncle, which constitutes forbearance