Contract Exam Outline – Professor Kull – Spring 2014
Contract Formation = Mutual assent + Exchange + Consideration
(Contract Formation) à Contract as Voluntary transaction
Hurley v. Eddington: Doctor had no obligation to treat patient.
o Rule: A person has complete freedom not to contract with someone else (Unless there is a statute requiring it, à Civil Rights Act); all contracts must be made voluntarily by parties
o Changed Circumstances: better argument for P: If the doctor was the family physician then there exists an implied legal duty to perform medical services when necessary; refusal would be a breach to perform for an already existing K
o P’s attorney turns to statutes to draw analogies to show when a service is made available to the public, they are under an affirmative duty to provide service- innkeepers, common carriers (railroads); attorney was ahead of his time.
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(Clerical Errors v. Error of Judgment)
Donovan v. RRL (Wrong Jaguar): Dealership advertised car in local newspaper and a typographical error was made on the price of the car ($10,000 less than intended). P saw the ad, attempted to buy car and when dealership informed P of mistake and refused to sell. P sued for breach of K. Result: dealership not required to sell
Rule: enforcing K would be an involuntary obligation b/c dealer had no intention of entering K at mistaken price; Court will not enforce K based on clerical errors
Case could have easily have come out differently:
Dealer is aware of advertising mistake and doesn’t correct it- probably just result in statutory penalties for false advertising
Buyer is aware of advertising error (transparent mistake)- no K
P could argue reliance and seek compensation for travel expenses and lost opportunity to purchase alternative cars; However, dealer did offer compensation for travel expenses/time
Transparent Mistake- similar to Raisin Case, Baseball Card Case, Life Insurance Policy, Barren Cow, Peerless
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(Intent to Contract) à Can you opt out of a contract?
Davis v. General Foods Corp.: Lady sends in pudding idea, compensation at discretion of company à have same product come out immediately after à no pay
o Rule: A meeting of the minds will not be inferred unless it is clear as to what terms and agreements the minds met over; No contract is formed when one party has complete discretion on the terms of the agreement
o Other Issues:
§ Indefinite à DOOM: Letter from General Foods that Davis relies on to establish contract is so indefinite that it cannot give rise to binding contract
· Performance: General Foods retained unlimited discretion as to their performance
· Reliance: No reliance/change of position as a result of alleged contract
§ Then/Now: Courts at this time were likely to dismiss Davis’ complaint, now they would be reluctant.
o Policy Issues:
§ In regards to issue submission, the likelihood and costs of litigation can get too high to prevent companies like General Foods from opting to deal outside legal realm.
o Kulltracts Due to the reluctance of courts to dismiss such complaints, companies won’t even open the letter today
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(Intent to Contract) à Class of Agreement Courts will Not Enforce (Must Intend Legal Consequences)
Balfour v. Balfour: Husband and wife agree to monthly stipend Consideration for the promise to pay was his spousal duty since they were described as couple in “amity” they could not be characterized at “Arms length”. Even though all elements of a K are present, still not enforceable b/c parties did not intend it to have legal consequences.
o Rule: (1) Agreements between married couples are assumed to be agreements not intended to have legal consequences; (2) Spouses in good relations cannot make contracts, unless they specifically and explicitly opt in.
o Other Issues:
§ Kull- judge seems to have mis-assessed marital status, it seems it was on the rocks and should have been an enforceable K (at arms length)
· Objectivists are wrong. Parties’ intent is the most relevant factor in K formation; must look to point in time when agreement is made
§ Then/Now: Look at parties intentions/Look at Reliance
§ Exception: Married couples at odds are at arm’s length with one another can make an enforceable contract (had agreement been made after divorce, wife would have a better case)
§ R2K § 21: Intention can’t form a contract, but it can prevent one
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(Subjective Theory of Intent: Acts show Intent, NOT thoughts)
Armstrong v. M’Ghee (1795): my horse sucks so bad you can have it for 5£ (super low price), wait just kidding I want it back, oh it’s dead… Claim was for replevin (not breach, b/c P claims no K was ever made). Horse died, so it can’t be replevin, and turns into trover.
o Rule: In a transaction where both sides know that one is joking, there is no legally binding intent; law is mainly concerned with outward manifestations of intent to enter K- doesn’t matter that Armstrong thought it was a joke, only matters that MGhee gave him reason to believe he understood the offer as a joke
o Other Issues:
§ Clear Signals: The party that creates the ambiguity bears the risk
§ Meeting of the Minds: Not voluntary by Armstrong understood M’Ghee to be in the same frame of mind
o Policy Issues:
§ Deals go better if you can give the other party the benefit of the doubt
§ Don’t want people opting out all the time because they were ”joking”
o Changed Circumstances: What if M’Ghee really didn’t now it was a joke?
§ Kull: Jury’s decision seems to reflect this concern b/c they didn’t grant full damages (only granted P a fraction of the horse’s value)
o 3 ways to decide case:
1. Armstrong joked and MGhee thought he was serious (relied to his detriment); killing the horse was evidence of his reliance- changed position substantially
2. Everyone knew it was a joke- no K
3. Armstrong was serious and realized it was dumb the day after- valid K, error in judgment
o Hypo 1- P asks D for horse back and D refuses, only horse doesn’t die- in this case there is no estoppel b/c of reliance- likely P would get horse back
o Hypo 2- everyone thought K was serious and D says he’ll deliver horse next day BUT doesn’t deliver, and P sues for breach- this is an incomplete K
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(What’s an offer? Objective theory of Intent- What would Reasonable Person Do)
Leonard v. PepsiCo: pepsi ad for pepsi stuff that could be purchased w/points; at end of ad Harrier Jet was displayed w/a point value for dramatic effect. Leonard attempted to purchase jet according to pepsi stuff rules, for the amount of points advertised. Pepsi refused, claiming it was not a serious offer. Leonard sued. Result: grant SJ for PepsiCo, offer was a joke and there was no intent to K on Pepsi’s part
Rule: whether something constitutes an offer is determined by objective reasonable person standard; advertisement does not constitute an offer if it is not detailed/specific
Kull: it was evident that Leonard knew it was a joke, he hired an attorney before redeeming the points (expected legal problems)
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Chandelor v. Lopus: goldsmith sold bezar-stone (intestinal stone thought to be magical) to Lopus for 100 pounds and affirmed its identity. Stone turned out to not be bezar-stone. Lopus sued for breach of warranty. Result: no breach of warranty…back then only express warranties existed (in writing). Kull: WRONG, b/c jeweler is a merchant there is an implied warranty; there’s also an express warranty b/c jeweler guaranteed it was a bona fide bezar-stone
Rule: UCC §2-313(1a)- any affirmation of fact as part of basis of bargain creates an express warranty
§2-714(2) – damages for breach of warranty = expected value – actual value (P would have gotten money back, since actual value of stone was 0£)
Kull- court got it wrong, today it would be considered an implied warranty (goldsmith was a merchant of similar goods) and an express warranty (presumes goods meet description given by blacksmith)
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(Fairness) à What is a warranty? How do you make one?
Daughtrey v. Ashe: P buys bracelet with diamonds that the jeweler knows are not VVS quality, but does not tell P this nor does P inquire about quality. Appraisal ticket slipped into box with an appraisal for “insurance purposes only,” but without qualifying diamond grade as opinion not fact. 4 years later Buyer finds out that diamonds are not of VVS quality. P Demands D put VVS quality diamonds in the bracelet, D refuses but offers to refund (would be a huge loss to P b/c he’s offering refund based on purchase price and diamond market has skyrocketed). HELD: Not a breach of warranty. Description of diamonds was not part of bargain at time of purchase, thus, did not induce purchase.
o Rule: Warranty must be part of the basis of the bargain to be enforced. Typically, reliance is required for it to be basis of bargain.
o **whole purpose of warranty law is to determine what it is that the seller, has in essence, agreed to sell**
o Enforceable promise= guarantee= warranty
o Other Issues:
§ UCC § 2- 313: Express Warranties by Affirmation, Promise, Description, Sample à Any of these elements that is the basis of the bargain = WARRANTY
· Opinion vs. Representation
o Opinions are not binding
o Representations are binding
§ UCC §2-314: Implied Warranties by Merchantability and Usage of Trade
o Kulltracts:
§ No reliance by buyer on seller’s statements-> needs this to prove existence of warranty (buyer didn’t know of appraisal slip until after K formed)
§ UCC § 2-313: does not compel you to make a warranty you don’t want to make à warranty must be something bought and paid for, even if only implicitly.
§ Changed Circumstances: If quality had become important issue after the purchase, and Daughtrey would have returned the jewels as permitted by the seller, but for his reliance on the enclosed description, then in that case Kull says he would agree with the decision. à Again reliance seems to be the showstopper.
